In commercial multifamily real estate, there’s a language that is spoken when you are connecting with brokers, property managers and other investors in the profession. To avoid sounding like a novice, an investor must be fluent with the real estate terminology to be taken seriously. Let’s take a minute to breakdown one of those terms.
The economic occupancy rate is the rate of paying tenants on the basis of their total possible revenue and the actual collected revenue. The economic occupancy rate is derived by dividing the actual collected revenue by the gross potential income.
- For example, a 200-unit property usually charges $850 per month per unit. Each month, a total of $3,000 is lost due to other concessions. It has 20 units vacant which could be rented for a total of $17,000 per month. Monthly bad debt is $5,000.
- The physical occupancy rate is 90%: 180 occupied units / 200 total units.
- The economic occupancy rate is 80%.
- Actual revenue collected / gross potential income = economic occupancy rate
By learning these concepts and terms, you’re separating yourself from the novice investor looking to be more active than passive. Here’s where you can learn more multifamily investing terms.