How To Calculate Rental Vacancy and Credit Loss in Real Estate Investing

By James Kimmons

Job Vacancy Indonesia, Employee, Vacancy

Failure to anticipate the loss of rental revenue due to vacant units and non-payment of rent will lead to lost profitability in your clients' income producing real estate investments. In helping clients to determine the suitability of a purchase, be sure that their due diligence includes an estimate of vacancy and credit loss. You can be sure that most lenders will take this into account also.

Difficulty: Easy

Time Required: 5 minutes

Here's How:

1. Determine an expected percentage of loss due to vacancy and non-payment by checking that of comparable properties and the recent loss experienced by the subject property. Last year's vacancy and credit loss from the subject property may have been 3% of net operating income. Other comparable properties experienced an average of 4%. Choose a value in the mix, let's say 3.60%.
2. Adjust your net operating income for next year by any anticipated rent increases. If you are anticipating a 5% increase in rent, and net operating income this year is $44,000, then: $44,000 X 1.05 = $46,200
3. Calculate the expected monetary loss for next year due to vacancy and credit losses: $46,200(net operating income) X .0360 (3.6%) loss estimate = $1663.20.

What You Need:

• Calculator
• Some estimate(s) of vacancy and credit loss percentages

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