Effective Gross Income

Effective Gross Income: What the Market Actually Requires

EGI is built, not observed. Underwriters start from gross potential rent, which prices every unit or suite at its lease rate and vacant space at market, then subtract the economic drags: physical vacancy, concessions, loss to lease (the gap between in-place and market rents), delinquency, and non-revenue units. The distinction between physical and economic occupancy is where deals get repriced: a building that is 95% physically occupied can easily be 88% economically occupied once free rent and bad debt are counted, and lenders underwrite the economic number.

Conventions are stable across capital sources. Agency lenders underwrite a minimum 5% economic vacancy on multifamily even when the property runs fuller, or the submarket vacancy if higher. Banks and life insurance companies apply similar floors, and CMBS typically underwrites in-place collections against a market vacancy test. Other income earns credit only with history: 12 months of collections for parking, fee, storage, or utility reimbursement programs is the usual bar, and a fee program launched last quarter gets zero. On transitional deals, bridge lenders and debt funds will underwrite a stabilized EGI for the exit while holding going-in sizing to current collections.

For borrowers the leverage is in documentation and sequencing. Rent rolls and trailing twelve month statements that reconcile cleanly let an underwriter accept the top line without haircuts. Building documented other income, by implementing utility reimbursements, monetizing parking and storage, and charging market fees, is one of the cheapest proceeds plays available, since every durable EGI dollar flows to NOI at a high margin. And proforma EGI built on rents you have not signed persuades no one; lenders lend against the rent roll you have, not the one in the model.

Why It Matters for Your Loan

EGI is the top line every ratio hangs from: vacancy floors, other income credit, and concession treatment flow directly into NOI, DSCR, debt yield, and ultimately proceeds. Underwriting conventions like the 5% minimum vacancy mean your EGI is partly set by lender policy, but documentation determines the rest. Commercial Lending Solutions packages rent rolls, trailing financials, and other income history so lenders underwrite the strongest supportable top line rather than defaulting to conservative floors.