What does the term "effective gross income" represent?

Effective gross income represents the gross income that a property generates after accounting for vacancy losses and any other potential income deductions. It reflects a more realistic income figure that a property owner can expect to receive. By subtracting vacancy losses from the total potential income, effective gross income provides a clearer picture of the actual income that can be anticipated, which is essential for evaluating the financial performance of a property.

This concept is particularly important for real estate investors and property managers, as it allows them to better assess cash flow and make informed decisions regarding property management, budgeting, and investment strategies. Understanding effective gross income helps in calculating further metrics, like net operating income, which is crucial for evaluating a property's profitability.