Bad Debt

Bad debt is the point where a balance stops being a collections problem and becomes a loss. A resident moves out owing past rent, damage charges or fees, you work the balance through your collections process, and when it is clear it will not be paid, the amount is written off. It shows up on the operating statement as a loss against income, and it lowers effective gross income and net operating income.

Managers see it on the monthly report next to vacancy loss and concessions. The owner will ask how much was written off, why, and what you are doing to keep it from growing. Most of it traces back to move-outs with unpaid balances, so the work starts at the front door: solid screening, clear lease terms, and quick action on late rent.

An example: a resident leaves owing 1,800 dollars in rent and 600 dollars in damage beyond the deposit. After the deposit accounting and a collections effort, the remaining balance is written off. That amount is now bad debt for the month.

A common mistake is writing off too soon, before the account is sent to collections or before deposit deductions are applied. Another is writing off too late, which hides losses and makes your delinquency report look worse than reality. Rules on deposits, fees and collections vary by state and sometimes by city, so follow your company policy and check local law.