What is estimated effective gross income (EGI) for the first year of operations?

1.The estimated effective gross income (EGI) for the first year of operations can be calculated as follows: Potential gross income: $340,000 Vacancy and collection losses: 15% of potential gross income = $51,000 EGI = Potential gross income – Vacancy and collection losses = $340,000 – $51,000 = $289,000

1. The estimated net operating income (NOI) for the first year of operations can be calculated as follows: EGI: $289,000 Operating expenses: 40% of EGI = $115,600 NOI = EGI – Operating expenses = $289,000 – $115,600 = $173,400
2. The estimated going-in cap rate (Ro) using NOI for the first year of operations can be calculated as follows: NOI: $173,400 Total purchase price: $1,500,000 Ro = NOI / Total purchase price = $173,400 / $1,500,000 = 0.1156 or 11.56% (round to nearest 2 decimal)

This cap rate is the initial return on investment, it’s a ratio of net operating income to purchase price. It gives an idea of the initial return on investment for the buyer.