Effective gross income is the relationship or

ratio In mathematics, a ratio shows how many times one number contains another. For example, if there are eight oranges and six lemons in a bowl of fruit, then the ratio of oranges to lemons is eight to six (that is, 8:6, which is equivalent to the ...

between the sale price of the

value Value or values may refer to: Ethics and social * Value (ethics) wherein said concept may be construed as treating actions themselves as abstract objects, associating value to them ** Values (Western philosophy) expands the notion of value beyo ...

of a property and its effective gross rental income. The anticipated

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...

from all operations of the real property after an allowance is made for a vacancy and collection losses. Effective gross income includes items constituting other income: income generated from the operation of the real property that is not derived from space rental (such as parking rental or income from

vending machines A vending machine is an automated machine that provides items such as snacks, beverages, cigarettes, and lottery tickets to consumers after cash, a credit card, or other forms of payment are inserted into the machine or otherwise made. The fir ...

). For example, if two properties have a potential income of $15,000 if they are all filled to maximum occupancy, and the average vacancy rate of the properties in cash is $1,250 (the sum of the rent that is not coming in by the vacancy in the properties). The average vacancy rate is then subtracted from the potential income from renting the properties so the total is $13,750, which becomes the effective gross income.

See also