Effective Gross Income is defined as:

• A. Potential gross income
• B. Net operating income after expenses
• C. Actual rent collected only
• D. Potential gross income less vacancy and bad debt

Answer: (D)

Effective Gross Income shows how much income a property is expected to generate from rents and other sources after accounting for vacancies and tenants who don’t pay, but before operating expenses are deducted. Start with Potential Gross Income, which assumes full occupancy at market rents, and then subtract the portion lost to vacancy and bad debt. That adjusted figure is the amount the property is expected to bring in before expenses. It’s not Net Operating Income, which would subtract operating expenses, and it’s not limited to actual rent collected since EGI reflects expected collections after Vacancy and Credit Losses. If you need a measure that includes other income sources beyond rent, you would move to GOI, but EGI specifically is PGI minus vacancy and bad debt.