Gross potential rent minus vacancy — the real top line.
The Effective Gross Income (EGI) of a property is total income the owner expects to collect — gross potential rent plus other income, minus vacancy and credit loss. EGI is the realistic top line of a property's income statement, sitting between gross potential rent (theoretical maximum) and NOI (after expenses).
EGI is what the property actually puts on the income line of a real income statement. Gross Potential Rent (GPR) is theoretical — what you'd collect if every unit was leased at market every day of the year. That never happens. Vacancy (units empty between tenants), credit loss (tenants who don't pay), and concessions all subtract from GPR to get to EGI, which is what shows up in the bank.
Vacancy assumptions are one of the most-fudged inputs in real estate pro formas. A stabilized Midwest multifamily typically runs 5–7% physical vacancy plus another 1–2% credit loss — call it 7% total. Stretching to 3–4% vacancy on a pro forma is one of the easiest ways to overstate value. Lenders typically underwrite to 5–8% vacancy regardless of what the owner submits.
Other income can be material — at a 200-unit Class B multifamily, $40–80/unit/month of laundry, parking, pet rent, and reimbursed utilities easily adds $100k+ of EGI annually. Skilled operators monetize every income stream the property can support, which is often a 3–5% EGI lift on top of base rent.
EGI is the input to nearly every downstream metric: the operating expense ratio is expressed as a % of EGI, NOI = EGI – operating expenses, and cap rate (NOI ÷ value) ultimately starts with EGI accuracy. A 5% overstatement of EGI typically translates to a 5% overstatement of NOI and value — which is why underwriting is so focused on getting EGI right.
| Gross Potential Rent (24 × $1,150 × 12) | $331,200 |
| + Other income (laundry, parking, fees) | $14,800 |
| Total potential income | $346,000 |
| – Physical vacancy (6%) | ($19,872) |
| – Credit loss & concessions (2%) | ($6,624) |
| Effective Gross Income (EGI) | $319,504 |
Gross potential rent is theoretical (every unit rented at market 365 days). EGI subtracts realistic vacancy and credit loss to get to what actually gets collected.
EGI is the property's top line (income collected). NOI is what's left after operating expenses. EGI minus operating expenses equals NOI.
Default to your market and class's historical norm — typically 5–8% combined physical + credit loss for stabilized multifamily. Going below 5% is aggressive without strong supporting data.
No — security deposits are liabilities, not income. Only forfeited deposits show up as income (and even then small relative to base rent).
Laundry, parking, pet rent, application fees, and RUBS utility reimbursements all flow into the "other income" line above the vacancy deduction. On larger properties, these can total $40–80/unit/month.
Matrix structures multifamily and DSCR loans on realistic EGI, not stretched pro forma. The loan that closes is the loan your property can support through real cycles.
