Vacancy and Credit Losses

Real estate investments may experience vacancy and credit losses when there are vacant units and unpaid rent. The actual amount of the loss can be expressed as a percentage of the net operating income or as a dollar amount. One factor that contributes to vacancy and credit losses include tenants that default and fail to fulfill the terms of the lease, which ultimately results in a loss of revenue. Additionally, vacant units result in credit losses. The percentage of vacancies and defaults can fluctuate based on the economy, job market and other demographic conditions. To get an idea of what a property’s projected vacancy rate may be, investors may obtain the vacancy rates of comparable properties. The real estate market is fluid and changes with various external factors, but using comparable figures can provide investors with a broad outlook.