Which formula correctly computes Effective Gross Income (EGI)?

Which formula correctly computes Effective Gross Income (EGI)?

• A. EGI = PGI minus Vacancy.
• B. EGI = PGI minus Vacancy Loss plus Other Income.
• C. EGI = NOI plus Other Income.
• D. EGI = PGI plus Vacancy Loss plus Other Income.

Answer: (B)

The main concept is how Effective Gross Income is derived by adjusting Potential Gross Income for what isn’t collected and what’s added from other sources. Start with Potential Gross Income, which assumes full occupancy and no allowances. Then subtract Vacancy Loss to reflect tenants who don’t pay or don’t occupy, and add Other Income from ancillary sources like parking, laundry, or vending. This yields EGI, the actual income a property is expected to generate before operating expenses. The other options either omit Other Income, incorrectly add vacancy, or mix in numbers in a way that doesn’t reflect how EGI is formed.

The main concept is how Effective Gross Income is derived by adjusting Potential Gross Income for what isn’t collected and what’s added from other sources. Start with Potential Gross Income, which assumes full occupancy and no allowances. Then subtract Vacancy Loss to reflect tenants who don’t pay or don’t occupy, and add Other Income from ancillary sources like parking, laundry, or vending. This yields EGI, the actual income a property is expected to generate before operating expenses. The other options either omit Other Income, incorrectly add vacancy, or mix in numbers in a way that doesn’t reflect how EGI is formed.