What Is Effective Gross Income (EGI)?
Effective Gross Income (EGI) is the total revenue a property actually collects after subtracting vacancy loss, concessions, and loss to lease from Gross Potential Rent, then adding other income sources like parking, laundry, and pet fees. EGI represents the real top line before operating expenses.
// EGI Formula
EGI = GPR - Vacancy - Concessions - Loss to Lease + Other Income
What Are the Components of EGI?
Each component of EGI represents a different adjustment between theoretical maximum revenue and what the property actually collects. Understanding each one prevents errors that compound into NOI and valuation mistakes.
Gross Potential Rent (GPR)
The theoretical maximum rental revenue if every unit were leased at market rent with zero downtime. GPR = Total Units x Market Rent x 12 months. This is the starting point of the EGI waterfall.
Vacancy Loss (subtracted)
Revenue lost from unoccupied units. Expressed as a percentage of GPR. A 100-unit property at 95% occupancy has 5% vacancy loss. Include both physical vacancy (empty units) and economic vacancy (occupied but non-paying tenants).
Concessions (subtracted)
Free rent, move-in specials, and other discounts. One month free on a 12-month lease reduces effective rent by 8.3%. Concessions are common during lease-up and in competitive markets.
Loss to Lease (subtracted)
The gap between market rent and what tenants actually pay. A unit at $1,350 when market is $1,500 has $150/month loss to lease. This is the primary revenue upside in value-add deals.
Other Income (added)
Non-rent revenue: parking, laundry, pet rent, storage, application fees, late fees, RUBS. Typically 5% to 15% of total EGI for multifamily. This line item can be a meaningful value-add lever.
EGI Waterfall Example
Here is a complete EGI waterfall for a 100-unit multifamily property with $1,400 average market rent.
| Line Item | Annual Amount | % of GPR |
|---|---|---|
| Gross Potential Rent (100 units x $1,400 x 12) | $1,680,000 | 100.0% |
| Less: Vacancy (5%) | ($84,000) | -5.0% |
| Less: Concessions (1%) | ($16,800) | -1.0% |
| Less: Loss to Lease (8%) | ($134,400) | -8.0% |
| Plus: Other Income | $126,000 | +7.5% |
| Effective Gross Income | $1,570,800 | 93.5% |
In this example, EGI is 93.5% of GPR. The NAA Income/Expense Survey reports that effective collection rates for stabilized multifamily properties typically fall between 88% and 95% of GPR, depending on market conditions.
Why Does EGI Matter for NOI?
EGI is the direct input to NOI. Since NOI = EGI - Operating Expenses, every dollar of error in EGI flows straight through to NOI, and from there to property valuation through cap rate math.
Overstating EGI by $50,000 at a 5% cap rate inflates the property value by $1,000,000. The most common EGI errors are underestimating vacancy (using 3% when the market is at 7%), ignoring concessions, and using market rents instead of in-place rents.
What Are Common EGI Mistakes?
The most frequent mistake is conflating GPR with EGI by ignoring one or more deduction lines. Here are the errors that show up most often in underwriting.
- Using physical occupancy instead of economic occupancy (ignoring non-paying tenants and concessions)
- Omitting loss to lease as a separate line item
- Understating vacancy by using the property's current rate instead of the submarket's stabilized average
- Missing other income sources (especially RUBS, which can add 3% to 5% of EGI at well-managed properties)
- Counting non-recurring income like insurance proceeds as other income
The Fannie Mae Multifamily Guide requires lenders to evaluate both physical and economic vacancy when underwriting EGI. Use a pro forma template that breaks out each EGI component as a separate line to avoid these errors.