What is effective gross income?

As you can see in the effective gross income formula above, the effective gross income is an intermediate step when calculating the net operating income and the bottom-line cash flow before tax for a property. Although the effective gross income calculation can be as simple as the above formula shows, in practice there is often more nuance.

What is effective gross income (EGI) of a rental property?

Therefore, you should be keenly interested in the precise EGI of any property rental property you consider for purchase. In a nutshell, effective gross income is all the income a property generates. You can figure the EGI of a property in its current condition or estimate a post-renovation (after repair) EGI.

What is the effective gross income multiplier?

The effective gross income can be used to calculate the gross income multiplier. The gross income multiplier is the ratio of a property’s sale price or value to its gross income. The effective gross income multiplier uses the effective gross income line item on a proforma as the numerator in the effective gross income formula.

How much income can a property generate if there is no vacancy?

The sum of the annual gross potential rental income and other income amounts to $5 million, which is the total income that could be generated by the property if there were no vacancy or credit losses, i.e. a 100% occupancy rate and no collection issues. Step 2. Effective Gross Income Calculation Example (EGI)