Vacancy and Credit Loss in Apartment Underwriting: How to Pick the Number
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Vacancy and credit loss is the line in an apartment pro forma that subtracts the rent a building will not collect from its gross potential rent. It has four parts: physical vacancy (empty units), concessions (free rent and discounts), bad debt (rent billed but never paid) and non-revenue units (model, office or employee units). Pick each from the building's own trailing 12 months and the local market, not from a flat rule of thumb. On a building with $1,200,000 of gross potential rent, every percentage point of the assumption is worth $12,000 of net operating income, or about $171,000 of value at a 7% cap rate.
This post is part of our guide to real estate syndication. It shows how to build the line, where each part comes from and how lenders treat it. Figures are as of November 2026.
What goes into the line?
| Part | What it is | Where to find it |
|---|---|---|
| Physical vacancy | Rent lost on empty units | Rent roll (vacant units) and the T12's vacancy line |
| Concessions | Free months, move-in specials, discounts | T12 concessions line; leases with free rent |
| Bad debt (credit loss) | Rent billed and written off | T12 bad debt line; delinquency report |
| Non-revenue units | Model, office and employee units earning no rent | Rent roll |
Together they make up economic vacancy, the share of gross potential rent the building does not collect; see economic vs physical occupancy. Loss to lease (rent below market on occupied units) is usually a separate line; see loss to lease.
A worked example
A 40-unit building has $1,200,000 of gross potential rent. The figures are an example.
| Part | Assumption | Amount |
|---|---|---|
| Physical vacancy | 5.0% | $60,000 |
| Concessions | 1.0% | $12,000 |
| Bad debt | 1.5% | $18,000 |
| Non-revenue units (1 model unit of 40) | 2.5% | $30,000 |
| Total vacancy and credit loss | 10.0% | $120,000 |
A pro forma that shows a single "5% vacancy" line here would overstate income by $60,000 a year, about $857,000 of value at a 7% cap rate. The difference is not physical vacancy; it is the three other parts, which a flat percentage hides.
How to pick each number
- Physical vacancy. Average the building's monthly vacancy over the T12, then compare it with the market's vacancy rate and with comparable buildings. If the building ran below the market because rents were low, expect vacancy to rise toward the market as you raise rents.
- Concessions. Use what the T12 shows, and what comparable buildings are offering now. Concessions rise when new supply opens nearby. See net effective rent and concessions.
- Bad debt. Use the T12, then check the delinquency report for balances not yet written off. A seller can make the T12 look clean by not writing off old balances.
- Non-revenue units. Count them on the rent roll and decide whether you will keep them.
Check market vacancy with public data; see free market research sources and rental vacancy by region.
How do lenders treat vacancy?
Lenders underwrite their own vacancy and credit loss. Agency guides tell lenders to look at the property's actual performance and the market, and lenders commonly apply the higher of the actual figure and a minimum they set. That minimum varies by lender and program, so ask for it in writing early: a higher lender vacancy means lower underwritten NOI and, often, a smaller loan. See how lenders size an apartment loan.
What about vacancy during a renovation?
A value-add plan takes units offline to renovate them. Model those units as vacant month by month while the work is done, plus the weeks to lease them afterward, instead of raising the average vacancy for the whole year. Then check that the reserves and the loan's interest-only period carry the building through the dip. See value-add renovation budget per unit and break-even occupancy.
What should investors ask?
- How is the vacancy and credit loss line built, part by part?
- How does it compare with the building's T12 and the market?
- What vacancy did the lender underwrite?
- What happens to distributions if economic vacancy is 3 points higher than the plan? See sensitivity analysis.
How DoorRaise fits in
DoorRaise helps sponsors raise the equity for apartment buildings with 5 or more units from their friends and followers. The sponsor enters a few deal numbers and DoorRaise computes the projections on the deal page, including the income after vacancy. DoorRaise forms the deal's LLC, prepares the offering documents, files Form D and verifies every investor's accreditation, in 506(b) and 506(c) deals. Investors fund by wire into escrow at Enterprise Bank & Trust, and distributions are quarterly by default. DoorRaise charges two flat fees: $1,500 to set up (non-refundable) and $5,000 a year for administration, the first year paid at closing from the money raised and only if the deal closes.
Test your vacancy assumption in the free cap rate and DSCR calculator, then start your deal.
FAQ
What vacancy rate should I use for apartment underwriting?
Build it from the building's trailing 12 months and the local market, part by part: physical vacancy, concessions, bad debt and non-revenue units. A flat percentage often understates the total.
What is credit loss in real estate?
Credit loss, or bad debt, is rent that was billed but will never be collected, usually written off after a tenant moves out owing money.
Is vacancy and credit loss the same as economic vacancy?
Close to it. Economic vacancy is all rent not collected, which is vacancy and credit loss plus concessions and non-revenue units, and in some definitions loss to lease. Say which parts your line includes.
Do lenders use the seller's vacancy rate?
Usually not. Lenders underwrite their own figure, commonly the higher of the property's actual vacancy and a minimum they set.
How much does one point of vacancy change value?
One point of gross potential rent, divided by the cap rate. With $1,200,000 of gross potential rent and a 7% cap rate, one point is $12,000 of NOI and about $171,000 of value.
Sources
- Fannie Mae Multifamily Selling and Servicing Guide
- Freddie Mac Multifamily Seller/Servicer Guide
- U.S. Census Bureau, Housing Vacancies and Homeownership (CPS/HVS)
This article is general information, not legal, tax or investment advice. The example building and its figures are illustrative. DoorRaise is not a lender, law firm, broker-dealer, investment adviser or funding portal.