Loss to Lease
Also called: LTL
Loss to lease is the difference between a property's market rent and the actual in-place rent on its current leases, representing income the property is contractually unable to collect until those leases roll.
Loss to lease is the most commonly cited source of value-add upside in multifamily, because it requires no capital to capture. If in-place rents sit $120 below market across 40 units, that is $57,600 of annual income that arrives simply by renewing or re-leasing at market over the next twelve to eighteen months.
It is also the most commonly overstated. Capturing it depends on the market rent estimate being real, which requires genuine rent comparables rather than the seller's assertion. It further depends on lease expiration timing, on renewal rent increase limits where rent regulation applies, and on the turnover cost of pushing rents that hard.
How to calculate loss to lease
Loss to Lease = (Market Rent - In-Place Rent) × Occupied Units × 12Worked example
A 40-unit property at 95% occupancy:
- Market rent
- $1,400 per unit
- Average in-place rent
- $1,280 per unit
- Occupied units
- 38
Rules of thumb
- Prove market rent with at least three genuine comparables of similar vintage, unit size, and amenity level before underwriting any loss to lease capture.
- Phase the capture over the lease expiration schedule rather than assuming it all lands in year one.
Related terms
- Mark to Market
Marking to market is the process of raising in-place rents to prevailing market levels as leases expire, converting loss to lease into collected income over the natural turnover cycle.
- Gross Potential Rent (GPR)
Gross potential rent is the total annual rent a property would collect if every unit were occupied at full market rent for the entire year, with no vacancy, concessions, or delinquency.
- Economic Vacancy
Economic vacancy is the total percentage of gross potential rent not actually collected, including physical vacancy plus concessions, delinquency, non-revenue units, and loss to lease.
- Value-Add
Value-add is an investment strategy that acquires a property with identifiable operational or physical upside and invests capital to raise its net operating income, increasing value beyond market appreciation.