The Income Approach is one of the most widely used methods for valuing real property. In fact, it is often considered to be the primary approach to value for commercial and multi-family residential property types. These types of properties are regularly purchased by investors, who are not particularly interested in the real estate but the income stream the real estate can generate. In this series of articles, we’ve looked at some tips for estimating market rent and accounting for rent concessions while deriving an Income Approach. This time I’d like to discuss adjusting for vacancy and collection loss as part of the Income Approach. When conducting an Income Approach, the first expense that any appraiser or investor should consider is vacancy and collection loss (V&C). Most properties experience some level of regular vacancies over the long term. And even if a property has a tenant committed to a long-term stable lease, there is still the risk that a tenant goes bankrupt or is unable to pay its rental obligations for whatever reason. Thus, even in the most stable situations, any Income Approach should include some allowance for vacancy and collection loss. Now that we understand a little better what the V&C expense is and why we need to account for it, next we need to try to quantify the proper allowance for the property being analyzed. Vacancies can vary drastically from property to property based on property type, regional demand, location, the competence of management, and a myriad of other factors. Perhaps the best place to start is with the occupancy history of the subject property itself. Let’s look at some common scenarios: Single-tenant properties, like a single family home or a large industrial distribution facility, may be fully leased for years at a time, experiencing no vacancy at all during this period. However, it may take many months to find a new tenant when the old one leaves. For example, consider a single-tenant industrial building that is leased for 36 months. After the lease expires and the tenant leaves, assume it takes four months to clean the property, market it, and get a new tenant in place. In this example, the property was vacant for four months over a 40-month stretch or 10% of the time on average. Single-tenant properties often experience vacancies in bursts like this. On the other hand, multi-tenant properties, like apartment complexes or retail centers, often experience individual tenant turnover on a regular basis. As tenants come and go, it is not uncommon to have a few units or suites vacant nearly all the time. For example, consider a 20-unit apartment complex. As renters come and go, the building is usually mostly occupied; however, if 4 of the 20 units are vacant at any given time on average, then the long-term vacancy rate for this property is probably around 20%. Another good source of vacancy information can be market surveys from commercial real estate brokerage. These surveys will often list average vacancy or occupancy rates organized by region and property type. For example, a typical market survey may show averaged vacancy rates for retail, office, industrial, and apartment sectors, in a specific region during a specific period. Similar to the information provided by commercial brokerage surveys, reports are available via online real estate databases, such as CoStar Property. These websites often have tools which you can use to generate vacancy reports using customizable parameters you select. You can narrow a search based on property type, location, size, and many other factors. These are the most common sources of vacancy information. A prudent appraiser or investor will use as much data as possible to estimate a reasonable long term vacancy allowance for a subject property.

7,400 thoughts on “The Income Approach – Vacancy and Collection Loss”

  1. Nairaland Forum / Nairaland / General / Politics / Why Is Kemi Adeosun Still Presiding Over The Economy (1258 Views)
    Photos Of Acting President Osinbajo Presiding Over The FEC Meeting
    Today / Is Kemi Really Ripe For Finance Minister?
    / Fresh Crisis In Senate As APC Senators Vow To Stop Ekweremadu From Presiding (1) (2) (3)
    (4)
    (0) (1) (Reply) (Go Down)Why Is Kemi Adeosun Still Presiding
    Over The Economy by BUHARIISCURSED(f):10:58am On Jun 02, 2016I still don’t know why PMB would allow the young woman to still preside over the economy,
    she might have gotten all the degrees in this world, but that does not mean she would make a fine minister for finance.
    President Buhari should be bold enough to remove her from that position.
    I watched the senate screening live and i was of
    the opinion that PMB would ‘anoint’ Mr Okechukwu Enelema from Abia
    state as the minister of finance. The man from Abia State during the live screening was sound and judging by his CV has worked and contributed greatly to the
    finance world both abroad and in Nigeria.

    Cc: lalasticlala
    1 LikeRe: Why Is Kemi Adeosun Still Presiding Over
    The Economy by temptnow:11:03am On Jun 02, 2016Its beyond me how an amateur is our
    finance minister.
    8 LikesRe: Why Is Kemi Adeosun Still Presiding Over The Economy by
    thelinguist:11:07am On Jun 02, 2016Lol
    Re: Why Is Kemi Adeosun Still Presiding Over The Economy
    by Benjom(m):11:10am On Jun 02, 2016Because she’s a woman with apple, I mean, of substance.

    Re: Why Is Kemi Adeosun Still Presiding Over The Economy by BUHARIISCURSED(f):
    11:10am On Jun 02, 2016thelinguist:
    Lol
    its not a laughing matter, will that woman be good
    enough to lead us out of this recession, or are going to watch her to lead us to the great depression of 1930’s experienced by Great Britain?
    3 LikesRe: Why Is Kemi Adeosun Still Presiding Over The Economy by
    Uduak2019:11:25am On Jun 02, 2016That’s One Nigeria my brother…yorubaa just want her there as their own Okonjo Iweala…whether she is qualified or the economy is spiraling into recession,
    they are happy with it. Abia people get finance and monetary
    professionals die…from Dr. Paul Oguma to Dr.
    Okwu Nnanna; current deputy governor CBN and next to succeed Emefiele, to Dr.
    Kalu Idika Kalu, many others.
    8 LikesRe: Why Is Kemi Adeosun Still Presiding Over The Economy
    by thelinguist:11:31am On Jun 02, 2016BUHARIISCURSED:

    its not a laughing matter, will that woman be good enough to lead
    us out of this recession, or are going to watch her to lead us to the great depression of 1930’s
    experienced by Great Britain?
    am an optimist…Nigeria will be gud leave the woman…its not her fault …Nigeria always finds a
    way of fixing itself
    Re: Why Is Kemi Adeosun Still Presiding Over The Economy by Omonigeriarere:12:
    14pm On Jun 02, 2016BUHARIISCURSED:
    I still don’t know why PMB would allow the young woman to still preside
    over the economy, she might have gotten all the degrees in this world, but that does not
    mean she would make a fine minister for finance. President Buhari
    should be bold enough to remove her from that position. I watched the senate screening live and i was of the
    opinion that PMB would ‘anoint’ Mr Okechukwu Enelema from Abia state as the
    minister of finance. The man from Abia State during the live screening was sound and
    judging by his CV has worked and contributed greatly to the finance world both abroad
    and in Nigeria.

    4. Because stealing was not corruption under GEJ – FFK said he
    received money, Falae, Bode George, etc Even if you are not an economist, just think about the impact the money
    looted under the former NSA could have better the lives of millions of Nigerians.[/b]
    3 LikesRe: Why Is Kemi Adeosun Still Presiding Over The Economy by BUHARIISCURSED(f):12:
    17pm On Jun 02, 2016Omonigeriarere:
    [s][/s]

    3. Because there was no will to save during oil boom by
    GEJ – http://www.punchng.com/no-will-to-save-under-jonathan-okonjo-iweala/

    4. Because stealing was not corruption under GEJ –
    FFK said he received money, Falae, Bode George, etc Even if you are not an economist, just think about the
    impact the money looted under the former NSA could
    have better the lives of millions of Nigerians.[/b]
    sorry sir.
    8 LikesRe: Why Is Kemi Adeosun Still Presiding Over The Economy by TheEclectic:12:
    20pm On Jun 02, 2016Omonigeriarere:
    [s][/s]

    [b]1. Because she is still clearing the mess that your World Bank Economist, resorted to
    borrowing to pay FG workers’ salaries as a result of mis-management
    of Nigerian economy well during the oil boom created- http://www.pmnewsnigeria.com/2015/05/06/fg-borrows-n473bn-to-pay-salaries-okonjo-iweala/

    2. Because even if your ‘Paper-Based-Economic Strategist’
    is still there, nothing can be done because has put
    Nigerian economy into bankruptcy before she quits.
    No wonder, she told Nigerians to prepare for hard times like this in 2015
    http://www.newsexpressngr.com/news/detail.php?news=11232-things-will-be-tough-till-the-end-of-2015

    3. Because there was no will to save during oil boom by GEJ to cater for the harsh time like this – http://www.punchng.com/no-will-to-save-under-jonathan-okonjo-iweala/

    4. Because stealing was not corruption under GEJ – FFK said he received money, Falae, Bode
    George, etc Even if you are not an economist, just think about the
    impact the money looted under the former NSA could have better the lives of millions of Nigerians.[/b]

    Beautiful nonsense! That girl should resign.
    9 LikesRe: Why Is Kemi Adeosun Still Presiding Over The Economy
    by Omonigeriarere:12:34pm On Jun 02, 2016BUHARIISCURSED:

    sorry sir.

    Thank you. Please always try to create a thread on a topic
    that is not beyond your intellectual capability.
    2 LikesRe: Why Is Kemi Adeosun Still Presiding Over The Economy by Omonigeriarere:12:35pm On Jun 02, 2016TheEclectic:

    Beautiful nonsense! That girl should resign.

    3 LikesRe: Why Is Kemi Adeosun Still Presiding Over The Economy by BUHARIISCURSED(f):12:42pm On Jun 02, 2016Omonigeriarere:

    Thank you. Please always try to create a thread
    on a topic that is not beyond your intellectual capability.

    Re: Why Is Kemi Adeosun Still Presiding Over The Economy by TheEclectic:12:42pm On Jun 02, 2016Omonigeriarere:

    You know where Aso Rock is situated
    You know where Ministry of Finance is situated
    You know where National Assembly is situated
    You know where House of Senate is situated
    You have Senators representing the interest of your Constituency

    Please do the needful and stop the ranting here.

    You will agree with me that she looks confused and lost each time she
    talks on the economy. Unless you’re too blind to see.
    7 LikesRe: Why Is Kemi Adeosun Still Presiding Over The Economy by BUHARIISCURSED(f):12:
    43pm On Jun 02, 2016TheEclectic:

    Beautiful nonsense! That girl should resign.
    he just said thrash, he wants to continue from where uncle Gbawe stopped
    4 LikesRe: Why Is Kemi Adeosun Still Presiding Over The Economy by stevecantrell:
    1:06pm On Jun 02, 2016BUHARIISCURSED:

    its not a laughing matter, will that woman be good enough to lead us out of this recession,
    or are going to watch her to lead us to the great depression of 1930’s experienced
    by Great Britain?

    its true Kemi may not be up to the task, but do we need to replace
    her with another ‘maka chukwu’ ? Your post has a loud tribalistic
    undertone.
    Re: Why Is Kemi Adeosun Still Presiding Over The Economy by mikolo80:
    2:01pm On Jun 02, 2016BUHARIISCURSED:
    I still don’t know why PMB would allow the young woman to still preside
    over the economy, she might have gotten all the degrees in this world, but that
    does not mean she would make a fine minister for finance.
    President Buhari should be bold enough to remove her
    from that position. I watched the senate screening
    live and i was of the opinion that PMB would ‘anoint’ Mr Okechukwu Enelema from Abia state
    as the minister of finance. The man from Abia State during
    the live screening was sound and judging by his CV has worked and contributed greatly to the finance world both abroad and in Nigeria.

    Cc: lalasticlala
    where do you know that accountant presides over company
    Re: Why Is Kemi Adeosun Still Presiding Over The Economy by BUHARIISCURSED(f):
    2:04pm On Jun 02, 2016mikolo80:
    where do you know that accountant presides over company

    1 LikeRe: Why Is Kemi Adeosun Still Presiding Over The Economy by mikolo80:2:
    04pm On Jun 02, 2016TheEclectic:

    Beautiful nonsense! That girl should resign.
    go and collect the resignation na
    1 LikeRe: Why Is Kemi Adeosun Still Presiding Over The Economy by plaetton:2:12pm On Jun 02, 2016BUHARIISCURSED:

    I still don’t know why PMB would allow the young woman to still preside
    over the economy, she might have gotten all the degrees in this
    world, but that does not mean she would make a fine minister for finance.
    President Buhari should be bold enough to remove her from that position. I watched the senate screening live and i was of the opinion that PMB would ‘anoint’ Mr Okechukwu Enelema
    from Abia state as the minister of finance. The man from Abia State during the live screening was sound and judging by
    his CV has worked and contributed greatly to the finance world
    both abroad and in Nigeria.

    Let us discuss the way out here, if PMB
    should still continue with Madam Kemi Adeosun or bring in matured
    Economist to come take charge of the economy.

    Cc: lalasticlala

    Pity is what we should have for her, not scorn.
    1 LikeRe: Why Is Kemi Adeosun Still Presiding Over The Economy
    by BUHARIISCURSED(f):2:16pm On Jun 02, 2016plaetton:

    Re: Why Is Kemi Adeosun Still Presiding Over The Economy
    by abbakacici:2:21pm On Jun 02, 2016Uduak2019:
    That’s One Nigeria my brother…yorubaa just want her
    there as their own Okonjo Iweala…whether she is qualified
    or the economy is spiraling into recession, they are happy with it.
    Abia people get finance and monetary professionals die…from Dr.
    Paul Oguma to Dr. Okwu Nnanna; current deputy governor
    CBN and next to succeed Emefiele, to Dr. Kalu Idika
    Kalu, many others.
    Ngozi ruin our economic while Enelema is doing nothing in his ministry but because his your
    tribes man you think he need promotion
    2 LikesRe: Why Is Kemi Adeosun Still Presiding Over The Economy by BUHARIISCURSED(f):
    2:23pm On Jun 02, 2016abbakacici:
    Ngozi ruin our economic while Enelema is doing nothing in his ministry but because his your tribes man you think he need promotion
    and what is kemi doing ?
    1 LikeRe: Why Is Kemi Adeosun Still Presiding Over The Economy by mikolo80:
    2:28pm On Jun 02, 2016exactly, shut it
    Re: Why Is Kemi Adeosun Still Presiding Over The Economy
    by upwardlyMobile:2:31pm On Jun 02, 2016There are job vacancies for experienced sales people on an FMCG products in Awka Anambra State.

    Accountants also required. Interested candidates must have minimum of HND/ BSC.

    All sales rep must have valid drivers license.

    All interested candidates to send CVs with reference to:
    info@phenomenalenergyng.com.

    Start date is June 2016.

    Only qualified candidates would be contacted.
    Re: Why Is Kemi Adeosun Still Presiding Over The
    Economy by Abagworo(m):2:33pm On Jun 02, 2016There’s no magic anyone can perform with the
    level of sabotage and oil price. The solution is long term and will take at least a minimum of 10 years.

    1 LikeRe: Why Is Kemi Adeosun Still Presiding Over The Economy by BUHARIISCURSED(f):2:54pm On Jun 02, 2016Abagworo:
    There’s no magic anyone can perform with the level of sabotage and
    oil price. The solution is long term and will take at least a minimum of
    10 years.
    But buhari promised us paradise:

    3,000,000 jobs in one year
    etc
    1 LikeRe: Why Is Kemi Adeosun Still Presiding Over The Economy by TheEclectic:3:48pm
    On Jun 02, 2016mikolo80:
    go and collect the resignation na

    Thank God say u agree with me say she no sabi anything about nigeria economy.
    She’s as confused as the economy itself.
    Re: Why Is Kemi Adeosun Still Presiding Over The Economy by
    TheEclectic:3:54pm On Jun 02, 2016mikolo80:

    where do you know that accountant presides over company

    OK na tell us who dey preside over our economy?
    Re: Why Is Kemi Adeosun Still Presiding Over The Economy by mikolo80:4:02pm On Jun 02, 2016TheEclectic:

    OK na tell us who dey preside over our economy?

    the president genius.
    Re: Why Is Kemi Adeosun Still Presiding Over The Economy
    by mikolo80:4:04pm On Jun 02, 2016TheEclectic:

    Thank God say u agree with me say she no sabi anything about nigeria economy.
    She’s as confused as the economy itself.
    how I take gree with you. bold am. is English your L
    1 or L 2
    Re: Why Is Kemi Adeosun Still Presiding Over The Economy by TheEclectic:
    4:05pm On Jun 02, 2016plaetton:

    I think you have the situation upside down sir.

    We should be asking the fine bright lady what she is doing in a
    medieval court of Mohammadu Buhari.

    She doesn’t belong there ,simply because her inputs, no matter how good, cannot be taken seriously.

    The President’s inner circle would deride and Mick her behind her back,
    and at times , in her face.
    We could only imagine what she goes through in that medieval court,
    with court jesters like Lai Mohammed, etc.

    We should remember the public insult and humiliation she
    suffered from the newly appointed customs boss during the Budget
    hearings in the national assembly.

    She is simply a fine new wine in an old bottle.

    Pity is what we should have for her, not scorn.

    My brother, we didnt put her there because of pity.
    If she’s not up to the task let her resign honourably
    unless she wants to continue disgracing herself.
    And if her suggestions are not considered by PMB and co then let her resign because the cap doesn’t fit her…she’s in an oversized shoes.
    She’s not only incompetent she is naive too. Even an ordinary cashier in mile 12 market would do better than her.

    (0) (1) (Reply)
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  2. The Nigeria Girls Soccer League has concluded preparations to associate the
    KC Gaming Community, proponents of the Bet9ja, because the title sponsors of the league.

    Revealing this after assembly with the administration of the corporate in Lagos,
    the Chairman of the Nigeria Girls Soccer League, Mrs Dilichukwu Onyedinma
    mentioned all of the preparations have been concluded for signing of the memoranda
    of understanding.

    “Discussions have reached the ultimate stage with KC Gaming Community, the house owners Bet9ja to come back into the League as our title sponsors for the Nigeria Ladies Premier League. Now we have been discussing with them, and there appears to be mild at the top of the tunnel. We at the moment are set to make it public and the Memorandum of Understanding would quickly be signed. This is an efficient factor for our Girls Soccer League, and no matter that accrues from the deal will go a great distance to cut back the burden of our clubs. I need to thank our numerous clubs for his or her persistence and assist; and to the Chairman of the KC Gaming Community, Mr. Kunle Soname for believing in ladies soccer within the country”.

    In his assertion, the Chairman of KC Gaming Community, Mr.
    Kunle Soname described the Nigeria Ladies Soccer groups as essentially the most profitable amongst all of the nationwide
    soccer groups within the nation.

    “It is not any gainsaying that our ladies have been essentially the most profitable amongst all our nationwide groups. They’ve been to the whole FIFA Girls World Cup finals from inception in 1991 up to now; they as soon as performed as much as the quarter finals in USA 1999. They’ve been to nearly all of the Olympics besides the 2012 Video games in London.
    [professional_advert_show_adzone id=”70560″] They’ve dominated the African scene, profitable the Africa Ladies Championship seven instances, and
    the age grade groups should not doing badly, with the U-20 women enjoying in all FIFA World Cup
    finals since inception in 2002 and reaching the ultimate twice.

    “These aren’t any imply achievements, and we felt that the neatest thing we will do as a company is to assist the League that has been producing these gamers which have been positively projecting the picture of this nation. That is our little means of giving again to the society and in addition making certain that the ladies are additional empowered by means of the sport of soccer.