Current real estate financial models today have poorly understood “conventional” approaches to vacancy or credit loss adjustments. A common approach is to apply a discount of some constant percentage, regardless of the property’s occupancy; however, this approach could result in inaccurate or unintended adjustments.
Assess tackles inaccuracies of this common industry practice by allowing three options for both General Vacancy and Credit loss adjustments, all of which are accessed in the Tenancy Losses section of the General Assumptions page.
- “All Tenant Income”: This is the most common and simplest option. It reduces all scheduled income by a fixed percentage. For example, if a property has $1,000,000 of projected rental income and general vacancy of 10%, then Assess subtracts $100,000 of vacancy.
- “All Market Income”: This option works in the same way as “All Tenant Income,” but only reduces income scheduled from “Market” tenants (i.e. not “In-Contract”).
- “Dynamic Loss”: This option adjusts the vacancy deduction based on the percentage of rental income designated as “Contract” versus “Market.” Dynamic Loss selects the lesser of the actual percentage of the property’s income that is designated as “Market” and the specified “Dynamic Loss %.”
For example, a property’s Dynamic Loss percentage is designated as 5%, and its rental income is comprised of 90% Contract income and 10% Market income. Dynamic Loss uses the lesser of 10% and 5% to calculate a vacancy deduction – in this case, 5%. If this same property’s rental income is 98% Contract / 2% Market, then Dynamic Loss uses the lesser of 2% and 5% -in this case, 2%.
See how Assess handles vacancy or credit loss adjustments!
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