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What is Effective Gross Income (EGI)?
The actual income a property generates after subtracting vacancy and credit losses from potential gross income, then adding other income sources like.
Description
Effective Gross Income (EGI) represents the realistic income a property will produce in a given period. It starts with Potential Gross Income (PGI), the maximum rent if eparticularly unit were leased at market rate with no defaults, then subtracts vacancy and collection losses, and adds miscellaneous income.
EGI = Potential Gross Income − Vacancy & Credit Losses + Other Income. For a 10-unit building in Dubai Marina with PGI of AED 1,200,000, 5% vacancy loss (AED 60,000), and AED 40,000 in parking income: EGI = AED 1,200,000 − AED 60,000 + AED 40,000 = AED 1,180,000.
EGI is the starting point for calculating Net Operating Income (NOI), which in turn drives cap rates, valuations, and loan underwriting. Overstating EGI, by ignoring realistic vacancy rates or credit losses, leads to inflated valuations and poor investment decisions.
Formula
EGI = Potential Gross Income − Vacancy & Credit Losses + Other IncomeHow Oliva uses this
Oliva's property scoring model incorporates area-specific vacancy data to calculate realistic EGI for each listing, ensuring investors see income projections grounded in actual market conditions rather than optimistic assumptions.
How to interpret
EGI is the income figure that actually drives your investment performance. Potential gross income is an aspirational ceiling; EGI is the realistic floor of what you will collect. Underwriting an investment using PGI without applying a vacancy factor leads to systematic overestimation of returns.
The vacancy assumption is the most contested input in any income analysis. Use area-specific data from RERA's rental index and DLD transaction records rather than a generic percentage. A 5% vacancy assumption may be conservative for prime Palm Jumeirah but optimistic for a secondary location with new supply coming.
Dubai market context
In Dubai, vacancy rates vary notably by area and property type. JLT and Dubai Silicon Oasis may see 8 to 12% vacancy, while prime Downtown and Palm Jumeirah units often run below 3%. Banks underwriting mortgages for investment properties in the UAE typically apply a standardized vacancy factor (often 5 to 10%) regardless of the owner's current occupancy.
Frequently asked questions
The actual income a property generates after subtracting vacancy and credit losses from potential gross income, then adding other income sources like parking or laundry fees.
The standard formula is: EGI = Potential Gross Income − Vacancy & Credit Losses + Other Income. Applying it consistently lets you compare projects on a like-for-like basis, which is the point of the metric.
EGI is the income figure that actually drives your investment performance. Potential gross income is an aspirational ceiling; EGI is the realistic floor of what you will collect.
In Dubai, vacancy rates vary notably by area and property type. JLT and Dubai Silicon Oasis may see 8 to 12% vacancy, while prime Downtown and Palm Jumeirah units often run below 3%.
Oliva's property scoring model incorporates area-specific vacancy data to calculate realistic EGI for each listing, ensuring investors see income projections grounded in actual market conditions rather than optimistic assumptions.
EGI is the starting point for calculating Net Operating Income (NOI), which in turn drives cap rates, valuations, and loan underwriting. Overstating EGI, by ignoring realistic vacancy rates or credit losses, leads to inflated valuations and poor investment decisions.
This content is for educational purposes only and does not constitute investment, financial, legal, or tax advice. Yields, returns, and market data referenced are historical or estimated and are not guaranteed. Capital is at risk. Seek independent professional advice before making investment decisions. Oliva is a licensed Dubai real estate advisor (DLD Broker Card: 92025, RERA BRN: 1573501). Read our Key Risks Disclosure and Disclaimer.