Unit-type rent roll, the formula, and how much of the gap a year of lease expiries actually recovers.
Loss to lease is the difference between market rent and the rent actually in place on occupied units: sum (market rent minus lease rent) across the leased units, and leave vacant units out. On an illustrative 200-unit property, 95 per cent occupied, it is $19,000 a month, $228,000 a year, or 4.87 per cent of gross potential rent. It is not all recoverable: after a year of lease expiries, about $182,400 of it is back in the run-rate, worth $3,474,286 at a 5.25 per cent cap rate.
Worked in full in Real Estate Fund Management by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Loss to lease is the line that sits between gross potential rent and vacancy on a multifamily operating statement. Buyers underwrite it as upside, sellers present it as embedded growth, and asset managers are measured on how quickly they close it. All three need the same two numbers: how big it is today, and how much of it a year of leasing will actually capture.
| Unit type | Units | Occupied | Market rent | Average in-place rent | Gap |
|---|---|---|---|---|---|
| One-bed | 80 | 76 | 1,600 | 1,520 | 80 |
| Two-bed | 100 | 95 | 2,100 | 1,980 | 120 |
| Three-bed | 20 | 19 | 2,600 | 2,520 | 80 |
| Total (gap: average per occupied unit) | 200 | 190 | 100 |
Market rent here means what each unit would let for today to a new resident, from current leasing and comparable evidence. In practice it is calculated unit by unit from the rent roll; averaging by type is enough to show the method.
Loss to lease = Σ over occupied units (market rent − lease rent)
In Excel, on a unit-level rent roll with market rent in C, lease rent in D and status in E: =SUMPRODUCT((E2:E201="Occupied")*(C2:C201-D2:D201)).
| Unit type | GPR a month | Loss to lease a month | Loss to lease a year | Gap as % of market |
|---|---|---|---|---|
| One-bed | 128,000 | 6,080 | 72,960 | 5.0% |
| Two-bed | 210,000 | 11,400 | 136,800 | 5.7% |
| Three-bed | 52,000 | 1,520 | 18,240 | 3.1% |
| Total | 390,000 | 19,000 | 228,000 | 5.13% |
As a share of gross potential rent, $228,000 over $4,680,000 is 4.87 per cent. As a share of the market rent on occupied units only, it is 5.13 per cent, the measure of how far the lease book sits below market. Quote one or the other and say which.
| Line | Annual | % of GPR |
|---|---|---|
| Gross potential rent at market | 4,680,000 | 100% |
| Less loss to lease | −228,000 | 4.87% |
| Less vacancy at market rent | −234,000 | 5.00% |
| In-place rent | 4,218,000 |
The reconciliation is the check that the calculation is right: if the three lines do not add back to the rent roll, vacant units have been priced into the loss to lease or occupied units into the vacancy. The same discipline separates physical from economic occupancy, worked in how to calculate economic occupancy.
The gap closes only when a lease rolls. Assume twelve-month leases expiring evenly, half the residents moving out at expiry with the unit re-let at market, and renewals capturing 60 per cent of their gap because renewal increases are held below the full mark-to-market to protect retention.
Share captured = move-out share × 100% + renewal share × renewal capture = 50% + 50% × 60% = 80%
Run-rate gain after twelve months = $228,000 × 80% = $182,400. Because expiries are spread through the year, the first year's revenue gains about half that, $91,200.
The remaining $45,600 sits with renewing residents and keeps closing at the same rate: after two years only 4 per cent of the original gap is left, provided market rents stand still.
| Move-out share | Renewal capture | Share captured | Run-rate gain | Value at 5.25% |
|---|---|---|---|---|
| 40% | 30% | 58% | 132,240 | 2,518,857 |
| 40% | 60% | 76% | 173,280 | 3,300,571 |
| 50% | 30% | 65% | 148,200 | 2,822,857 |
| 50% | 60% | 80% | 182,400 | 3,474,286 |
| 60% | 30% | 72% | 164,160 | 3,126,857 |
| 60% | 60% | 84% | 191,520 | 3,648,000 |
Renewal policy moves the answer more than turnover does. Raising renewal capture from 30 to 60 per cent at 50 per cent turnover adds $34,200 of run-rate income; it also risks pushing more residents out, and every move-out costs vacant days and make-ready that this table does not charge.
Capitalising the whole loss to lease as if it were already income. At a 5.25 per cent cap rate, $228,000 reads as $4,342,857 of value; a year of realistic leasing delivers $3,474,286, and a buyer who pays for the difference, $868,571, has paid for income that renewals will not reach in the first year and that a softening market can erase. Underwrite the burn-off lease by lease, through the expiry schedule, and net off the turnover cost of the move-outs that produce it. The same discount applies to commercial leases with longer, staggered expiries, worked in what a lease mark-to-market is actually worth.
Loss to lease is market minus in-place rent on occupied units only: $228,000 a year here, 4.87 per cent of GPR. What it is worth depends on the expiry profile and the renewal policy, and on these assumptions 80 per cent of it is captured in a year. Real Estate Fund Management builds the asset budget from the rent roll up, separating in-place operations from value creation, and the free workbooks for the book include that budget and its variance sheet; for where the line sits in the operating statement, see how to calculate NOI.
There is no fixed benchmark: loss to lease follows how fast market rents have moved relative to the lease book. In a rising market a few per cent of gross potential rent is common, and it can turn negative, a gain to lease, when market rents fall below in-place rents. In the example it is 4.87 per cent, $228,000 a year, with every unit type below market.
No. Loss to lease measures occupied units let below market; vacancy measures empty units at market rent. Keeping them apart is what lets the rent roll reconcile: here gross potential rent of $4,680,000 less $228,000 of loss to lease and $234,000 of vacancy equals the $4,218,000 of in-place rent. Mixing them overstates one and hides the other.
Roughly at the speed of lease expiries, slowed by renewals that do not reach market. With twelve-month leases expiring evenly, half the residents moving out and renewals capturing 60 per cent of the gap, 80 per cent of the run-rate gap is closed after a year, and 4 per cent of it remains after two years. First-year revenue gains only half the run-rate, $91,200 here.
This article is one calculation from Real Estate Fund Management. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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