“Loss to Lease” is a term used in the context of multifamily real estate, particularly in property management and investment analysis. It refers to the difference between the potential rental income that a property could generate and the actual rental income it currently receives. In other words, it’s the amount of income that a property is “losing” due to renting units at below-market rents or experiencing vacancies.
Loss to Lease can occur for various reasons:
Here’s an example to illustrate Loss to Lease:
Let’s say you own a multifamily property with 50 units. The current average rent you’re charging is $1,000 per month. However, after conducting a market analysis, you determine that the market average rent for similar units is $1,200 per month.
Potential Rental Income (Market Rent): 50 units × $1,200 = $60,000
Actual Rental Income: 50 units × $1,000 = $50,000
Loss to Lease: $60,000 – $50,000 = $10,000
In this example, the property is experiencing a loss to lease of $10,000 per month because the rents being charged are $200 below the market rates.
To address loss to lease, property managers and owners can take several actions:
Managing loss to lease is crucial for maximizing a property’s potential income and overall profitability. By addressing this issue, property owners and managers can ensure that their investment is performing optimally in relation to the local rental market.