What Is Effective Gross Income (EGI) for an Apartment Building?
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Effective gross income (EGI) is the income an apartment building expects to collect in a year after losses, plus its other income: gross potential rent, minus loss to lease, vacancy, concessions and bad debt, plus income such as utility reimbursements, parking and fees. It sits between gross potential rent and net operating income on an operating statement.
A worked example (hypothetical)
| Line | Amount |
|---|---|
| Gross potential rent (40 units) | $624,000 |
| Loss to lease (2%) | −$12,480 |
| Vacancy (5%) | −$31,200 |
| Concessions (1%) | −$6,240 |
| Bad debt (1%) | −$6,240 |
| Net rental income | $567,840 |
| Other income (utility reimbursements, fees, parking) | $36,000 |
| Effective gross income | $603,840 |
If operating expenses are $270,000, net operating income is $333,840.
Where does each deduction come from?
- Loss to lease: the gap between market rent and the rent in current leases. See loss to lease.
- Vacancy and bad debt: empty units and rent billed but not paid. See vacancy and credit loss.
- Concessions: free rent or discounts given to sign leases. See net effective rent and concessions.
- Other income: utility billing, fees, parking and laundry. See other income in underwriting and RUBS.
What should you check in a seller's EGI?
Compare the vacancy and bad debt used with the last twelve months of actual collections, check that other income is recurring rather than one-time, and make sure concessions still being given are subtracted. See the rent roll and T12.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings from their friends and followers under Rule 506(b) or 506(c), and verifies that every investor is accredited before they sign, in both. Investors fund by wire into the deal's escrow account at Enterprise Bank & Trust. Sponsors pay a $1,500 setup fee (non-refundable) and a flat $5,000 a year administration fee; see pricing.
FAQ
Is EGI the same as revenue?
Close. EGI is the expected collected revenue for underwriting; actual revenue in the T12 is what was collected.
Does EGI include utility reimbursements?
Yes, as other income, while the utility cost stays in operating expenses.
What comes after EGI?
Operating expenses, which give net operating income.
Sources
This article is general information, not legal, tax or investment advice. Talk to your own CPA and attorney about your deal. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.