What is the difference between physical and economic occupancy in multifamily investing?

Good question.

Physical occupancy is known as the number of tenants occupying the number of units you have available. More simply stated, if you have 100 units and 100 are full your physical occupancy is 100%. Economic occupancy differs in that it measures the rate of the actual rent collected compared to the gross potential rental income of the property.

In other words, if you have 100 units and 100 are full and market rents are $1,000/month, but 50 tenants are old time tenants that have not gotten an annual rent increase due to sloppy property management and are paying discounted rents at $700/month, your economic occupancy is only 85%.

50 units * 1000 = 50,000
50 units * 700 = 35,000

Total Rent Collected = 85,000

Your goal should be to get the physical occupancy and economic occupancy as close to one another as possible, somewhere in the 90th percentile range.

It is important to understand these terms since the general partner you invest with might use them.

I offer education and training to landlords, engineers, doctors and dentists, and many others that would like to learn how to enjoy the benefits of multifamily as quickly as possible. If that sounds interesting contact my office by going to www.benjaminzmiller.com and fill out the contact form.

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I hope that helps and good luck with your investing!

Benjamin Z Miller
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