Vacancy & Credit Loss

Vacancy and credit loss is the deduction from gross potential rent (GPR) for space that sits empty (vacancy) and for rent that's billed but never collected (credit loss or bad debt). Together they bridge the gap between the theoretical rent roll and the income a property actually banks.

How it's used: it's the line that turns GPR into effective gross income. Underwriters apply a market vacancy factor (often 5–10% for multifamily, more for transitional assets) plus a smaller credit-loss allowance, rather than assuming 100% occupancy and perfect collections.

Why it matters: understating vacancy and credit loss is the single most common way a pro-forma inflates value. Because the deduction flows straight into EGI, NOI, and the cap rate, shaving a couple of points off the vacancy assumption can lift the implied price materially — without any real change to the building. Always check the underwritten vacancy against actual occupancy history and submarket norms; a deal modeled at 3% vacancy in an 8% market is borrowing value from the future.

Formula: Vacancy & credit loss = GPR × (vacancy rate + credit-loss rate)

A quick screen that ignores this step entirely is the gross rent multiplier. The multifamily underwriting guide builds the full income statement.