Gross Income Multiplier

However, because there are two concepts of gross income in the real estate industry, the Potential Gross Income (PGI) and the Effective Gross Income (EGI), there are also two respective multipliers that involve a property's gross income, the Potential Gross Income Multiplier (PGIM) and the Effective Gross Income Multiplier (EGIM):

The formula for EGIM is the following:

EGIM = Market Price / Effective Gross Income (EGI)

The formula for the Effective Gross Income (EGI):

EGI = Potential Gross Rental Income + Other Income – Vacancy & Bad Debt Allowance

It is more meaningful to calculate the EGIM on an annual basis and thus the annual Effcective Gross Income is typically used in this formula. If a monthly EGIM is desired then the monthly EGI should be used.

Notice that the Potential Gross Income in the EGI formula includes primarily rental income, but it accounts also for any other income that may be produced by the property, such as income from vending machines, laundry room, parking, etc. The vacancy and bad debt allowance accounts for space/units that remain vacant during the year and, as such do not actually provide any rental income to the landlord, while bad debt allowances cover any rent that is owed during the year but is not paid by the tenants.

Example