Vacancy & Credit Loss
The Real-World Income Adjustments That Turn GPI Into What You Actually Collect
Vacancy and collection losses are the two most common “reality checks” investors apply to rental income during underwriting. They help you move from what a property could earn in a perfect world to what it will likely earn in the real world.
Vacancy loss accounts for time when a unit is not producing rent—typically between tenants, during lease-up, or when demand softens. Even strong properties experience some vacancy due to normal turnover. In underwriting, vacancy is usually modeled as a percentage of income to reflect expected downtime and leasing friction.
Collection loss (often called credit loss) accounts for rent that is charged but not actually collected. This can come from late payments, partial payments, non-payment, evictions, or write-offs. Even with good screening and management, most investors assume some level of collection loss to stay conservative.
Together, these losses reduce your top-line rental number and help you estimate a more realistic income figure:
Effective Rental Income (ERI) = GPI − Vacancy Loss − Collection Loss
The goal isn’t to be pessimistic—it’s to be accurate. By including vacancy and collection losses, you build a cushion into your numbers so your projected cash flow holds up when the property operates like a real property, not a perfect spreadsheet.