The direct answer
Bad debt, vacancy and concessions all reduce rental income, but they describe different causes. Vacancy is revenue lost because space is unoccupied, concessions are intentional rent reductions or incentives, and bad debt is billed or accrued rent that the owner ultimately does not collect. Separating them improves underwriting and operating diagnosis.
Treat vacancy as an occupancy problem
Vacancy reflects units or space that are not producing contracted rent. It should be analyzed with physical occupancy, downtime and lease-up assumptions.
To apply the approach to an editable scenario, use the Net Effective Rent Calculator. For the neighboring question, explore Rental Property Cash Flow Calculator.
Treat concessions as a pricing or leasing decision
Free rent, move-in credits or temporary discounts can be deliberate tools to attract or retain tenants. They reduce effective rent even when the property is physically occupied.
Treat bad debt as a collection problem
Bad debt arises when amounts due are not recovered and are written off under the property’s accounting policy. Delinquency can precede bad debt, but not every late balance becomes a permanent loss.
Worked example
A 100-unit property could have 5 vacant units, 10 occupied tenants receiving concessions and 3 occupied tenants with unpaid balances. Combining all three into one vacancy percentage hides three different operating issues.
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Common mistakes and limitations
Do not use one generic “vacancy and credit loss” assumption without understanding how much comes from empty units, discounts and nonpayment.
Does not determine lease legality, fees outside modeled concessions or renewal economics.
Frequently asked questions
Is bad debt the same as delinquency?
No. Delinquency is unpaid rent at a point in time; bad debt generally refers to amounts considered uncollectible or written off.
Can an occupied property still have significant income loss?
Yes. Concessions and bad debt can reduce economic income even when physical occupancy is high.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- IRS — Publication 527 (2025), Residential Rental PropertyRental income and expense concepts; operating/rental expense context.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
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