When underwriting, do you apply vacancy only to base rental revenue or to total revenue including other income?
I've seen it done both ways but applying a total economic vacancy to all income makes the most sense to me.
[{"id": "hn37y95", "text": "Total revenue", "replies": [], "depth": 1}, {"id": "hn3j1y8", "text": "Total revenue, but depending on how material the other income is, I might apply a different vacancy rate to each type of revenue.\n\nE.g. 5% for office, 6% for retail, 15% for parking...", "replies": [], "depth": 1}, {"id": "hn3j3bi", "text": "Depends on where your sourcing the numbers from. If other income is based on t12 but rent is grossed up then i wouldn\u2019t include it for other income.", "replies": [], "depth": 1}, {"id": "hn3lo65", "text": "Depends on source of assumptions.", "replies": [], "depth": 1}, {"id": "hn3uvnm", "text": "Total - 5% vacancy for residential and 10% vacancy for commercial", "replies": [], "depth": 1}, {"id": "hn468d6", "text": "Depends on what the other income is, and consistency on how you apply it to your sales comps.", "replies": [], "depth": 1}, {"id": "hn4gmu1", "text": "When a tenant goes vacant they don\u2019t keep paying their NNN\u2019s!  If you are not using total revenue your probably under projecting the actual risk of vacancy.\n\nI definitely agree with using different rates for different product types in mixed use properties.", "replies": [], "depth": 1}, {"id": "hn4l202", "text": "Typically total but as others have said it depends on sources of other income.", "replies": [], "depth": 1}, {"id": "hn5bxqe", "text": "For retail, office, industrial, it\u2019s total revenue. For multifamily, it\u2019s total rents.", "replies": [{"id": "hn5kcfs", "text": "What is the logic behind this on multifamily?", "replies": [{"id": "hn5la6o", "text": "Essentially bc you\u2019re only collecting the other income generated by tenants living at the property.  So if you\u2019re 90% occupied, your other income is already reflecting a ~10% implied vacancy factor.   It\u2019s not exact but close enough for most lenders.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hn5s166", "text": "Assuming the other income contains vacancy baked in, then only to base rents.", "replies": [], "depth": 1}, {"id": "hn5s4g9", "text": "The vacancy factor is on the gross income. I have a spreadsheet that calculates it for me. Very simple. Happy to share.", "replies": [], "depth": 1}, {"id": "hn64ez5", "text": "Whenever I am underwriting I will add a general vacancy/credit loss to the potential gross revenue - depending on the asset and the in-place occupancy.", "replies": [], "depth": 1}]