Loss to lease is a phrase that is used in real estate property leasing, particularly pertaining to apartment complexes or senior assisted living facilities. Loss to lease is also an accounting line in the books of rental properties and apartment complexes. In both cases, it refers to income on leases that is potentially lost through making incentive offers to prospective tenants whom you hope to lease a unit in a property.
Examples of loss to lease are helpful to understand the concept. Some apartments will offer one free month’s rent with a six or twelve month lease contract. The amount of this lost month’s rent would be the loss to lease figure for the leasing property and the leasing property’s books. Other examples involve loss to lease figured up on a monthly basis. Should the potential revenue from rent amount to only $500 when the market rate for rental is $550, then the loss to lease comes out to be $50 per month.
Cash flow is the part of a rental property books where loss to lease most commonly appears. When required, it can be figured up using a simple formula. The scheduled base rental revenue is determined. This figure has the potential market rent subtracted from it to come up with the Loss to Lease result.
The interesting thing about loss to lease is that it has no meaningful impact on a rental property or apartment complex’s cash flow bottom line. Instead, it only represents an accounting number. Loss to lease does not offer any advantages to a company or individual when they are figuring up and filing their taxes either, since it does not represent any actual real or tangible loss in income, only loss in potential income, or hoped for income.