Loss to Lease
Loss to lease is the difference between the market rent a unit could command today and the rent the current tenant actually pays under their lease. It shows how much additional income a property could capture as leases expire and renew at market rates.
How to calculate loss to lease
Loss to lease = Market rent − In-place rent
Loss to lease (%) = (Market rent − In-place rent) ÷ Market rent × 100
Example: A 200-unit apartment property has an average market rent of $1,800 per unit and an average in-place rent of $1,710. The loss to lease is $90 per unit per month, or 5 percent, which adds up to about $216,000 a year across the property.
Why loss to lease matters
Loss to lease measures upside that already exists in the property. When rents are below market, income can rise as leases turn over without any renovation, which is why buyers and lenders look at it closely.
Underwriters do not assume the full gap is captured at once. They spread it across the lease expiration schedule, allow for tenants who leave, and check that market rents are supported by current comparables. An overstated market rent is one of the easiest ways to inflate a pro forma.
A negative loss to lease, where tenants pay above market, signals risk, because income could fall as those leases renew.
Loss to Lease vs. Economic Vacancy
Loss to lease measures the gap between market rent and the rent in signed leases. Economic vacancy measures rent that is not collected at all, from empty units, concessions and unpaid rent. Both keep income below its full potential, but they have different causes and different fixes.
Where it matters by property type
Loss to lease matters most in multifamily underwriting, where most leases renew within a year, and is limited in affordable housing, where program rules cap rents.
How Smart Capital Center handles loss to lease
Smart Capital Center's AI agents compare in-place rents on the rent roll with current market rents for similar properties nearby, unit by unit, and show where the gap sits. Analysts decide how much of it to underwrite and how quickly.
Frequently asked questions
How is loss to lease calculated?
Loss to lease equals market rent minus in-place rent, measured per unit or across the whole property. Market rent comes from current comparable properties and recent new leases. The total is often shown as a percentage of gross potential rent, which makes it easier to compare properties of different sizes.
Is loss to lease a bad sign?
Not necessarily. A moderate loss to lease often means rents can grow as leases renew, which buyers find attractive. It can also mean management has kept rents low to hold occupancy. A very large gap deserves scrutiny, because it may point to market rent assumptions the comparables do not support.
Where does loss to lease appear in an operating statement?
Many multifamily operating statements start with gross potential rent at market rates, then subtract loss to lease, vacancy, concessions and bad debt to reach the rent actually collected. Showing it as a separate line helps underwriters tell below-market leases apart from income that was never collected.