Vacancy and Credit Losses

[Tyler Lyons]

BP Community,

As I'm going through and modeling out my first few deals, I'm looking for some wisdom from the experienced folks out there as to what kind of assumptions that you use for vacancy and credit losses. I know that in my farm area of Grand Rapids, MI that vacancies have been quite low. However, it would seem that depending on the area/neighborhood within the market, you'd want to adjust/flex these assumptions. What assumptions are others out there using in their deal models for vacancy and credit losses?

I was thinking that for nicer, more desirable neighborhoods, it might make sense to use 5% for vacancy and 5% for credit losses (10% total loss for vacancy and credit losses) and for tougher neighborhoods, to use 8% for each (15-16% total loss for vacancy and credit losses). 

I understand that this stuff is highly localized, but any thoughts as to how you think about these assumptions and your strategies would be greatly appreciated. If anyone has any first-hand experience as to what you're seeing around Grand Rapids, that would be great as well.

Thanks Everyone!

Tyler