Annual potential rental income is $600,000 and vacancy loss alone is $36,000. What percentage of potential rent does that loss represent?
Correct Answer
A) 6.0%
36000÷600000×100 = 6. Common errors: reporting the occupancy share instead of the loss share gives 94.0%; misplacing the decimal (×1,000 instead of ×100) gives 60.0%; dividing by the remaining rent instead of potential rent gives 6.4%.
Why This Is the Correct Answer
Option A is correct because $36,000 / $600,000 x 100 = 6.0%. Vacancy loss is measured against potential rent, which is the income before vacancy and collection losses are deducted. The result is the loss share of potential rent.
Why the Other Options Are Wrong
Option B: 6.4%
Option B, 6.4%, comes from dividing by the remaining rent instead of potential rent: $36,000 / ($600,000 - $36,000) x 100 = about 6.4%. The question asks for a share of potential rent, so the answer is $36,000 / $600,000 = 6.0%.
Option C: 60.0%
Option C, 60.0%, comes from misplacing the decimal by multiplying by 1,000 instead of 100: $36,000 / $600,000 x 1,000 = 60.0. The correct percentage is $36,000 / $600,000 x 100 = 6.0%.
Option D: 94.0%
Option D, 94.0%, reports the occupancy share instead of the loss share: ($600,000 - $36,000) / $600,000 x 100 = 94.0%. The loss share is $36,000 / $600,000 = 6.0%.
Loss over potential
Vacancy percent is the loss on top and the full potential rent on the bottom.
How to use: Use this to set up any vacancy-percentage calculation correctly.
Exam Tip
Check that your denominator is the base the question names, here potential rent, and that you report the share asked for.
Common Mistakes to Avoid
- -Dividing the loss by effective rent instead of potential rent
- -Reporting occupancy instead of vacancy
- -Misplacing the decimal when converting to a percentage
Concept Deep Dive
Analysis
This question tests expressing vacancy loss as a percentage of potential gross rent. The denominator is potential rent, and the result is the loss share, not the occupancy share. The distractors come from using the wrong denominator, reporting the complement or misplacing the decimal.
Background Knowledge
Potential gross income minus vacancy and collection losses equals effective gross income. Vacancy is usually expressed as a percentage of potential gross income, which allows comparison with market vacancy rates.
Real-World Application
An owner's statement shows $600,000 in scheduled rent and $36,000 lost to vacancy. The appraiser computes a 6.0% loss and compares it with vacancy at competing properties before choosing a stabilized rate.
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