Guides
What Is Loss-to-Lease? NOI and the Multifamily Income Waterfall Explained
Short answer: Plain-English definitions of gross potential rent, loss-to-lease, effective gross income and net operating income (NOI), with how they connect. Loss-to-lease is the difference between a unit's current market rent and the contract rent on its existing lease, summed across a property. Sources: [1] [2]
What is loss-to-lease?
Loss-to-lease is the difference between a unit's current market rent and the contract rent on its existing lease, summed across a property. It appears when market rents rise faster than in-place rents, and can turn into 'gain-to-lease' when market rents fall below contract rents.
What is gross potential rent (GPR)?
GPR is the rent a property would collect if every unit were leased at market rent for the full period. Loss-to-lease, vacancy, concessions and bad debt are deducted from it.
What is effective gross income (EGI)?
EGI is GPR minus loss-to-lease, vacancy, concessions and credit loss, plus other income such as fees and utility reimbursements.
What is net operating income (NOI)?
NOI is EGI minus operating expenses such as payroll, repairs, utilities, insurance, management and property taxes. It excludes debt service, depreciation and capital expenditures. Lenders such as Fannie Mae publish standard definitions for these line items.
How does NOI relate to value?
Value ≈ NOI ÷ cap rate. A $1 million NOI at a 5% cap rate implies about $20 million of value, which is why small NOI changes matter.
Frequently asked questions
What does loss-to-lease mean?
Loss-to-lease is the difference between a unit's current market rent and the contract rent on its existing lease, summed across a property. It appears when market rents rise faster than in-place rents, and can turn into 'gain-to-lease' when market rents fall below contract rents.
What is gross potential rent?
GPR is the rent a property would collect if every unit were leased at market rent for the full period. Loss-to-lease, vacancy, concessions and bad debt are deducted from it.
How is effective gross income calculated?
EGI is GPR minus loss-to-lease, vacancy, concessions and credit loss, plus other income such as fees and utility reimbursements.
What is net operating income?
NOI is EGI minus operating expenses such as payroll, repairs, utilities, insurance, management and property taxes. It excludes debt service, depreciation and capital expenditures.
How does NOI affect a property's value?
Value ≈ NOI ÷ cap rate. A $1 million NOI at a 5% cap rate implies about $20 million of value, which is why small NOI changes matter.
Where do these figures come from?
Every figure is attributed in the text and linked in the numbered Sources list (2 sources, with publication dates where available). Vendor figures are labeled vendor-reported.