Vacancy and Credit Loss

So what is the actual difference between Vacancy and Credit Loss. Vacancy is the loss of potential income which is attributed to space in a building that is not leased. More simply put...this is empty space that could be making money for the landlord. Credit Loss, on the other hand, is the rent due that the landlord has not been able to collect due to a tenant's default. Again, simply put...rent that is owed that has not been paid.

This is one of the reasons that bankers will often use vacancy and credit loss in the formulas that is above a current vacancy rate. The apartment complex may have a vacancy rate of 5% for the last 3 years, but the banker may use a 10% vacancy and credit loss rate in order to cover any tenants that may be in place, but not paying the rent due.