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www.REIClub.com – Effective Gross Income (EGI) Is An Important Number in Commercial Real Estate. Here’s How To Calculate EGI For Your Real Estate Investment… Hi, this isFrank Chen with REIClub.com, the only site you need as a real estate investor. Today I’ve got quick video on how to calculate effective gross income (EGI) for commercial real estate investing. Effective Gross Income (EGI) The amount of income produced by a piece of property, plus misc income, less vacancy costs and collection issues. Investors use the EGI to determine how much they are willing to pay for the property based on how much they expect to make in earnings. Gross Potential Rent (GPR) The expected income a property will produce when fully occupied and all rents are collected. Example 10 unit apartment $800/month $8000/year x 12 months = $96000 Other Income/Revenues – laundry facilities – vending machines – car wash centers – additional storage – personal errand services – late fees from rent – parking permits – covered parking – etc… Example: $1000/mo in additional revenue $12000/year Total Potential Revenues (Gross Income) GPR + other income = $108000/year Vacancy The vacancy rate is the percentage of all the rental units that are vacant in relation to the total amount of units in the property. (Total Vacant Units) / (Total Units) = Vacancy Rate Average vacancy rates are around 5-10% Credits Money or percentage of income that is estimated to be lost due to non-payment of rents. Also includes …
I appreciate videos like this that provide great information —Thumbs Up !!!
Well said!
You have a nice collection of videos on your channel and this is one of the best.
Do you ever do any one-on-one training?
Do you need to take into account anticipated vacancy with this calculation?
Your videos cover a lot of information that really help real estate investors. This is an important topic and you explain it very clearly.
Excellent, useful and relevant!
Very helpful information- How did you become so smart about this topic?
I may have missed this, but should your income tax bracket be taken into consideration when determined this EGI figure?
Thanks for simplifying what can be a complicated but very important topic for real estate investors.
Thanks for your comment, Our goal is to make 5-6 minute videos to thoroughly cover 1 topic. If we try to cover everything on Cap rates (including financing) the videos would be too long. We plan to cover the other values you listed in future videos. Hope this clears things up.
@UltimateBargains you have a good point every property is different and the Egi may not be able to reach due to the economy in most situations, so at this point in the real estate game its rent want you can for now below market and beat your competition until the market gets better or not eat! Period! Bravo @UltimateBargans
Go to my YouTube channel and see how CAP rates are really determined by investors. Comparable CAP rates are meaningless, because real estate is a “borrowed money” business. You must factor in the cost and structure of financing and your required yields to calculate the true CAP rate. You don’t know how those other comparable properties were financed nor their required yields, so you cannot recreate their CAP rates. I teach extensively about this subject on YouTube and my websites.
Very informative.
Cap rates are primarily derived via the market (cap rates from comparable sales), quarterly publications (such as PwC), or market participant discussions (broker opinion) when appraising a property.
Cap rates are primarily derived via the market (cap rates from comparable sales), quarterly publications (such as PwC), or market participant discussions (broker opinion) when appraising a property.
That’s only half of the calculation. Income property produces an income stream. That income stream is the Net Operating Income (NOI). The NOI is the Effective Gross Income (EGI) minus the Gross Operating Expense (GOE). The GOE is all of the expenses related to operating the property other than mortgage debt service. The value of the property is the capitalized value of the NOI, which is the NOI divided the derived CAP rate. The CAP rate is calculated from the cost and structure of financing.