Wednesday, February 24, 2010

Budgets, budgets, budgets.....

Guideline #13: Budget for vacancies and credit losses. Almost
always. Few are the tenants that you can count on being there
forever. And, just because they are there doesn't necessarily
mean you will collect all the rent.

In normal times, factoring in a vacancy/credit loss factor of
between 3% and 5% was considered appropriate. In our new
normal times, the range between 5% and 10% should be
considered.

Vacancy rates for apartments increased by several percentage
points during the 2004-2006 home buying mania. They have
now settled back. Good thing.

Vacancy rates for retail space have been skewed by long term
vacancies in a number of "big boxes". Needless to say, these
percentages are at historic highs. Its hard to budget for those,
so extreme caution is merited before investing in the retail
market segment.

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