When preparing a pro forma estimate of future performance of an investment,the vacancy and collection allowance is an estimate of the amount by which gross scheduled rents should be decreased to account for vacancies and for rents that will be uncollectible.A typical number to use is 5 percent of the gross scheduled rent.Some analysts include rent concessions, or discounts, in the vacancy and collection allowance figure; others prefer to list rent concessions as a separate expense item so management can track how much it is willing to give away in concessions and match that against how much it actually has to spend for concessions.
Example: An apartment complex has 10 units renting for $800 per month. It caters to stu- dents and sometimes has vacancies during the summer months. The owner is willing to give away $1,500 a year in free rent, reduced rent, or other concessions. The owner anticipates next year will look like this:
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