What is Loss of Rent and Why Should You Care?
Loss of Rent represents the difference between the market rent (what you could be charging) and the actual rent (what you are charging). It's a critical metric for landlords and property managers because it directly impacts your rental income and overall investment returns.
Factors like property location, size, amenities, and current market demand can all influence the market rent. If your current tenants are paying less than this market figure, you're essentially leaving money on the table.
How to Calculate Loss of Rent
Here's a simple step-by-step guide:
- Identify the Market Rent (monthly): This can be gathered through market research or by consulting real estate professionals
- Identify the Actual Rent (monthly): This is the rent you're currently charging your tenants
Next, use the formula:
[\text{Loss of Rent} = \text{Market Rent} - \text{Actual Rent}]
Where:
- Market Rent is the potential rental income a property could generate based on prevailing market conditions
- Actual Rent is the income actually being collected from leasing the property
Calculation Example
Say you discover through your research that the Market Rent for your unit is $2,500 per month. Meanwhile, your Actual Rent, what you're currently collecting, is $1,800 per month.
Let's plug it into our formula:
[\text{Loss of Rent} = 2,500 - 1,800 = 700]
Your loss of rent is $700 per month, or $8,400 per year. That's significant money that could be improving your investment returns.