Most landlords calculate their rental income based on 12 months of rent. That is fiction. No property is occupied 100% of the time. There are voids between tenancies, delays in finding new tenants, and periods when the property sits empty for refurbishment.
Effective Gross Income adjusts your potential gross income for vacancy and credit losses. It answers: what is this property realistically going to earn, given that it will not be full every month?
For a standard single-let in Portsmouth, a realistic void rate is 5% to 10%, roughly one month empty per year. If your rent is £1,000 a month, your EGI is £11,000, not £12,000. That £1,000 gap is real money you need to account for.
For HMOs, voids are typically lower per room but more frequent. A five-bed HMO might have each room empty for two weeks between tenants. The overall rate is lower but the administration is higher.
For serviced accommodation, occupancy rates are the main driver. A property with 70% occupancy and a nightly rate of £100 generates an EGI of roughly £25,550. At 80% occupancy, it jumps to £29,200. The difference of £3,650 is significant.
Never calculate your income at 100% occupancy. Use your actual local void rate based on market conditions.
The formula
EGI = Potential Gross Income (PGI) - Vacancy and Credit Loss
Why this matters
EGI is your honest rental income. If you calculate returns based on 100% occupancy, you are misleading yourself. Use a realistic void rate from your local market.
Running these calculations before you buy is the difference between a good investment and an expensive lesson. Xelox Properties can help you evaluate any deal.