Learn · Loss to lease
What does loss to lease mean?
The buckets a rent roll conflates
When a property's gross potential rent (every unit at market) does not match the rent a T-12 shows collected, the difference splits into distinct causes. Keeping them separate is the whole discipline, because they mean opposite things to a buyer. Loss to lease is the only one that is upside rather than a loss.
- Loss to lease. Occupied units leased below market. Unrealized upside, capturable as leases roll, if the market rent is real and the turn is budgeted.
- Vacancy. Units with no resident, carried at market on the potential. A realized loss, and separate from how the occupied units are priced.
- Concessions. Free rent or discounts to sign or renew. A realized loss, often a sign the market rent is soft.
- Bad debt. Rent billed but never collected. A realized loss and a collections-quality signal.
- In-year timing. Mid-year lease starts and step-ups that make the trailing twelve understate the current run rate. A timing artifact, not a loss.
Loss to lease reconciler
Pre-filled with a 24-unit property, 22 occupied. Vacancy comes off the vacant units at market; loss to lease is the market-minus-in-place spread on the occupied units only, so the two never double-count. If in-place rent exceeds market, the line flips to gain to lease. Percentages are against gross potential rent. Edit any field.
Inputs
Bridge (annual)
| Gross potential rent (market) | $446,400 | 100% |
| Less vacancy (vacant units) | -$37,200 | 8.3% |
| Less loss to lease | -$39,600 | 8.9% |
| Occupied contractual rent | $369,600 | 82.8% |
| Less concessions | -$5,000 | 1.1% |
| Less bad debt | -$4,000 | 0.9% |
| Less in-year timing | -$3,000 | 0.7% |
| Collected / net rental | $357,600 | 80.1% |
Why the distinction decides the price
Four of these five lines are money the property already lost this year: vacancy, concessions, bad debt, and timing. Loss to lease is the exception. It is money the property has not earned yet but could, as below-market leases roll to market, provided the market rent is supported by comparable leases and you budget the turn cost and downtime to capture it. A proforma that quietly folds loss to lease into current income is pricing tomorrow's upside as if it were today's cash, which is exactly the move the actuals are meant to catch.
Appraisers handle this cleanly: existing contract rent on occupied units, market rent on vacant units, with the loss-to-lease spread shown as its own line rather than baked into potential income. See the same property carried through the full underwriting in how to underwrite an apartment deal, the rent-roll mechanics in how to read a rent roll, and the actuals-versus-projection discipline in T-12 vs proforma.
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Run the free T-12 health checkFrequently asked questions
- What does loss to lease mean?
- Loss to lease is the gap between a unit's market rent and the lower in-place (contractual) rent the current resident actually pays, measured on occupied units only. It is unrealized upside, not a cash loss: the lease was signed below today's market, usually months ago. Per unit it is market rent minus in-place rent, summed across occupied units.
- Is loss to lease the same as vacancy?
- No. Loss to lease applies only to occupied units renting below market. Vacancy is income lost on units with no resident. They are separate lines, and computing loss to lease on all units (not just occupied ones) double-counts the vacant units, once as below-market and once as vacant. A clean reconciliation deducts vacancy on the vacant units and loss to lease on the occupied ones.
- Is loss to lease good or bad?
- For a buyer it can be good: it is captured upside as below-market leases roll to market, but only if the market rent is real and supported by comps, and only after you budget the turnover cost and downtime to reach it. It is a mark-to-market gap, never guaranteed income. A proforma that books the full loss to lease as current NOI is pricing tomorrow's upside as today's cash.
- What is gain to lease?
- Gain to lease is the opposite case: in-place rents sit above current market, so a unit rolling to a new lease re-rents lower. It appears when a market softens after leases were signed. Careful underwriting nets loss to lease against gain to lease and shows one signed gain-or-loss-to-lease figure rather than counting only the favorable side.
- How do you calculate loss to lease on a rent roll?
- For each occupied unit, subtract in-place rent from market rent, keep the positive gaps, and sum them. Start from gross potential rent (every unit at market), deduct vacancy on the vacant units and loss to lease on the occupied ones to reach occupied contractual rent, then take out concessions, bad debt, and any timing effects to bridge down to what the T-12 shows collected. Always disclose whether the loss-to-lease percentage is against occupied market rent or total gross potential.
Reviewed by Scott Henderson, Senior Multifamily Advisor · Updated July 2026