In real estate, what does the term "effective gross income" refer to?

Effective gross income is a crucial concept in real estate that specifically refers to the income remaining after accounting for vacancies and collection losses. This measure is essential for property owners and investors as it provides a more accurate representation of the potential income a property can generate.

Understanding effective gross income helps in evaluating the financial performance and viability of an investment property. It reflects the reality of rental income by considering that not all rented units will be occupied continuously or that all tenants will pay their rent on time. Thus, effective gross income starts with the potential gross income (the total income generated when fully leased) and adjusts for any expected losses due to vacancy or non-payment.

By focusing on this figure, real estate professionals can better assess cash flow, budgeting, and financial forecasting for property investments. This understanding is fundamental to making informed decisions in real estate management and investment.