Why does the economic occupancy formula not consider bad debt?

The economic occupancy formula focuses on the revenue that a property is effectively generating from occupied units, rather than accounting for losses due to uncollected rent or unpaid debts. Therefore, it does not include bad debt because this amount does not represent actual funds that the property has received or will receive.

Bad debt typically refers to rent that has been earned but is not collectible. By excluding it from the economic occupancy calculation, property managers gain a clearer picture of the property's performance based solely on the rent from tenants who are currently occupying units and paying their rent. This method emphasizes operational efficiency, as it allows for assessment of current income versus potential income that is considered uncollectible, which would distort the overall financial picture.

In this context, understanding that bad debt does not contribute to the economic occupancy ratio helps property managers identify areas for improvement in tenant collections and overall financial health without the influence of non-revenue-generating accounts.