What is represented by the term "EGI" in real estate calculations?

The term "EGI" stands for Effective Gross Income in real estate calculations. This figure is crucial as it represents the total income that a property generates after accounting for vacancy and collection losses. EGI is derived from the potential gross income, which is the maximum income a property could earn if it were fully rented out without any deductions.

Once potential gross income is calculated, subtracting expected vacancies—such as times when the property may not have tenants or amounts that are uncollectible—yields the effective gross income. This measure is significant for real estate investors and property managers as it provides a realistic picture of the income that can be expected from the property over a certain period, enabling more informed decisions regarding investments and financial planning.

Understanding EGI is essential for evaluating the profitability of an investment property and for preparing financial forecasts and budgets. Without this calculation, one might overlook important factors that could significantly impact the property's revenue potential.