What is the Definition of Minimum Vacancy Reserve?

Minimum Vacancy Reserve


Definition: A guideline that suggests the minimum required vacancy and collection loss reserve for the proposed loan. Lenders base this guideline on numerous factors including property type, loan amount, proposed loan to value and debt service coverage, and numerous physical, financial and tenancy factors identified in the proposed loan. Unless manually adjusted by the Originator or Lender, Lenders/Banks use this guideline as the default value to calculate loan results. The vacancy and collection loss rate is the percentage of all units or space that is unoccupied, not rented or from which there is no rental income. On a pro-forma income statement a projected vacancy rate is used to estimate the vacancy allowance (both physical and economic), which is deducted from potential gross income to derive effective gross income.

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