What Is Gross Operating Income (GOI) in Real Estate?

Female landlord rents to a young man who signs the lease in a kitchen of an apartment

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Gross operating income (GOI) is a real estate investment term that means the result of subtracting the credit and vacancy losses from a rental property's gross potential income.

Key Takeaways

  • Gross operating income (GOI), sometimes called effective gross income (EGI), is when you subtract credit and vacancy losses from your rental property's gross potential income.
  • Gross potential income is what you could make as a landlord if your property was rented for the entire year, with no delayed rent payments or vacancies.
  • To maximize your gross operating income, you'll need to maximize your gross potential income, which means renting to trustworthy tenants who pay on time and who will rent for a full 12 months.

How Does Gross Operating Income (GOI) Work?

The single biggest draw for real estate rental property investors is regular positive cash flow. It's all about that cash going to the bank every month. Sure, we want the property to appreciate in value as well, but we can buy and hold stocks to get that result.

Before you can get to gross operating income, GOI, you start with gross potential income, GPI. Potential is self-explanatory in a way. It is potential income, but it isn't necessarily reality. GPI is the expected rent you will receive in a year from your rental property if it is rented the entire 365 days, and if the tenants pay their full rent as agreed.


GOI is also sometimes known as effective gross income (EGI).

GPI is also before any expenses, taxes, etc. and GOI is the same. Before fees, taxes, and other things you need to pay to manage your property, what is your total gross income? After accounting for fees and taxes, it's called your net operating income.

Vacancy Loss

Rental properties do not stay rented 365 days every year. Nor do tenants always pay their full rent as they agreed in the lease. Stuff happens. Tenants move out, sometimes with notice and sometimes not. The point is that between tenants there is a period when you're not going to be getting paid rent. For that period of time, you will experience what we call "vacancy loss." It is the lost income for the period you do not have a tenant paying rent.

So, the first thing we deduct from GPI to get to GOI is the lost rental income when the property is empty. If you've owned rental properties for a while, you will have some experience numbers to help you to estimate this number. Obviously, it will vary, but when you're predicting income into the future, that GOI, you need to have some idea of what you will experience for vacancy loss.

Credit Loss

Next we have to consider that not every rent check will arrive, or that they will but they won't clear the bank. This credit loss is rarely a higher cost than vacancy loss, but don't think you won't experience it from time to time. Again, if you've been in the business awhile and have a historic number to apply here, then great. We all know it's just an estimate anyway, as next year's tenants are different than last year's.

How To Keep Vacancy and Credit Loss Low

One important factor in reducing vacancy loss is keeping a close watch on your properties to make sure they stay in good condition. When someone does move out, you want a process in place that will get that unit ready for a new tenant quickly. You should always be marketing, as it's better to be telling callers you will not have a vacancy until sometime in the future than it is to wait for calls with a unit empty.

For credit loss, the first obvious thing is to do credit checks on applicants. Also, check their references from past landlords if they have them. Leasing to trustworthy tenants with a good credit history is the most effective way to cut credit losses.

Constantly working to narrow the gap between gross potential income and gross operating income is how you will over time maintain low vacancy and credit loss numbers.

Frequently Asked Questions (FAQs)

What is the difference between gross profit and operating income?

Gross profit is the max amount of money you can make on your rental or business, before taxes and fees. Operating income is what it costs to achieve profit. For landlords of rental properties, gross profit is what you could get if you never had a vacancy and a tenant never missed a rent payment. Gross operating income is what you get after you subtract vacancy and credit losses from your gross potential profit.

How do you calculate gross operating income (GOI)?

Gross operating income is calculated by taking the total potential income you could make on a rental for one year and subtracting from it any vacancy losses and credit losses you may have experienced. For example, if you own an apartment and rent it out to a tenant for $1,000 per month, your gross potential income is $12,000. But if they miss a rent payment one month and then also leave a month early, your gross operating income is now $10,000 ($12,000 - $1,000 - $1,000 = $10,000).

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  1. State of California, Board of Equalization. "Lesson 7 Exercises – Processing the Income Stream (The Income Approach to Value)."

  2. Elika New York Real Estate. "Net Operating Income."

  3. Virginia Tech, Blackwood Program in Real Estate. "Real Estate Glossary."

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