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Effective gross income

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Effective gross income

This term used for an income-producing property, derived from the potential gross income, less the vacancy factor and a collection loss amount.

This is the relationship or ratio between the sale price of the value of a property and its effective gross rental income.

The anticipated income from all operations of the real property after an allowance is made for a vacancy and collection losses. Effective gross income includes items constituting other income, i.e., income generated from the operation of the real property that is not derived from space rental (e.g., parking rental or income from vending machines).

For example: Let's say that we have a couple properties that have a potential income of $15,000 if they are all filled to maximum occupancy. The average vacancy rate of the properties in cash is $1,250 (this is the sum of the rent that is not coming in due to vacancy in the properties). We then subtract the average vacancy rate in dollars from the potential income from renting the properties. Our total is then $13,750. Therefore, the Effective Gross Rental Income is then $13,750.

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