Gross Rent vs Effective Gross Income
Definition
Gross potential rent (GPR) is the rent a property would collect in a period if every unit or acre were leased at its scheduled rent and every tenant paid in full. Effective gross income (EGI) is the income the property actually produces: gross potential rent minus vacancy loss (units empty), concessions (free rent and discounts), loss to lease (leases below current market rent, where tracked) and collection loss or bad debt (rent billed but never paid), plus other income such as parking, pet, late and application fees, laundry, or, on farms, crop-share payments and hunting or wind leases. EGI is the top line from which operating expenses are subtracted to reach net operating income. The gap between the two shows how much of a property's advertised rent is reaching the owner.
Why it matters
Every income figure further down a property's statements, NOI, cap rate, cash-on-cash and distributions, inherits whatever happens between scheduled rent and collected income. Offerings often show gross potential rent or a single lease's monthly rent because it is clean and large; the deductions only appear once the property has operated for a while. For fractional single-property investments the swing is sharp: one vacancy in a single-family rental is a 100% vacancy for that month, and one non-paying tenant can wipe out a quarter's distributions. Asking for effective gross income, and the history behind it, separates what a property is advertised to earn from what it does earn.
Common misconceptions
- •A signed lease is not collected income. Concessions and non-payment reduce what arrives.
- •Full occupancy does not mean full income. Occupied units can be on concessions or in arrears.
- •Other income is not always recurring. Fees and one-off items should be checked over several periods.
- •A single property's vacancy is not a percentage. It is all or nothing, month by month.
- •Straight-line rent in accounts is not cash timing. Farmland Partners recognizes lease rent evenly over the term even though cash arrives in lump sums.
Technical details
Worked example: a 20-unit building for one year
Gross potential rent: 20 units x $1,500 x 12 = $360,000.
Vacancy loss at 6%: $21,600.
Concessions: one month free on four new leases = $6,000.
Collection loss (bad debt) at 1.5%: $5,400.
Other income (parking, fees, laundry): $9,000. Effective gross income = $360,000 minus $33,000 plus $9,000 = $336,000, or 93.3% of gross potential rent.
The deductions
Vacancy loss: rent not billed while units are empty, including turnover time.
Concessions: free rent periods and discounts used to lease units.
Loss to lease: the gap between in-place leases and current market rent, shown by some operators.
Collection loss: rent billed but uncollected and written off.
Other income: added back, with recurring items separated from one-time ones.
Farmland differences
Vacancy: Farmland Partners believes quality farmland has a near-zero vacancy rate, and a tenant who fails to pay before planting can be replaced that season.
Advance rent: a majority of its leases require at least 50% of annual fixed rent before spring planting.
Variable rent: crop-share and revenue-based leases make income move with yields and prices.
Other farm income: wind, solar, hunting and mineral leases; Farmland Partners had renewable energy leases on 10 farms covering about 1,973 acres at year-end 2025.
How investors apply the term
Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.
The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.
Frequently asked questions
- How much of scheduled rent becomes actual property income?
- It varies with the property, its tenants and the market, and a property in lease-up or a weak market converts far less than a stabilized one. In the worked 20-unit example on this page, 93.3% of gross potential rent becomes effective gross income. The only reliable figure for a specific property is its own history of billed rent, collections and vacancies.
- What is the difference between vacancy loss and collection loss?
- Vacancy loss is rent not billed because a unit is empty. Collection loss is rent billed to an occupied unit but not paid. A property can be fully occupied and still lose income to non-paying tenants, which is why physical occupancy and rent collection are tracked separately.
- Do farm leases have the same deductions?
- Fewer. Good farmland is rarely vacant, and many cash leases collect rent in advance: Farmland Partners says a majority of its leases require at least 50%, and sometimes 100%, of annual fixed rent before spring planting. Variable or crop-share rent, however, moves with yields and prices, so farm income can fall below scheduled rent in a bad year.
- Why do advertised yields sometimes use gross rent?
- Because it is the largest number. A yield on gross rent ignores vacancy, concessions, collection losses and all expenses. AltStreet's Lofty review found its 9.2% May 2026 yield headline could be reproduced only by excluding the 30 listings that reported no rent that month.