Have you guys ever modeled things and incorporated parts of a template, but had no idea what the logic was behind some of the parts?
I'm incorporating a vacancy/rollover into the expected revenue. Building in a 25% chance of 6 months of down time in the year, I have ((new rent*size)/12)*25% chance of vacancy for 6mo.. it seems to give the right answer, and people accept it, but I don't know where the /12 come from... why would we include a twelve month break down into the expected loss of rent, when the factors are 6 months, and a 25% of it occurring? If I dont include the /12, the number is way higher than it should be.... any tips on modeling vacancy loss for expected revenue?
Looks like your original formula would need an annualized figure in your 'new rent' variable to be correct. I'm assuming that the 25% is coming from the balance of a 75% retention ratio, so the entire formula just for the absorption/turnover vacancy should be (((Annualized new rent PSF * size)/12) * (0.25 * 6)). There would obviously be 0 vacancy loss if they renew, so it's essentially (0 * 0.75) + (total monthly rent * 2). You have to remember to round up for the 1.5 months since nobody really models half-monthly income. Also just an FYI, you should technically be calling this absorption/turnover vacancy.... Vacancy loss in my experience is used interchangeably with General Vacancy Loss, which is usually a 3-5% loss factor budgeted for non-credit worthy tenants, which hits the cash flow at a different point.
Hope this makes sense, let me know if I am not understanding your question correctly. Not sure if you have an Argus license but sometimes when you are teaching yourself the math it is easier to run it in there first and then check the math it is doing as opposed to trying to build the model from scratch yourself in excel.
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