Deficit

A deficit happens when a property’s operating expenses and debt service run higher than its income, leaving negative cash flow. To cover the shortfall, sometimes called a cash flow deficit, the owner has to put in additional capital.

Deficits can arise from high vacancy, rising operating costs, below-market rents, or excessive leverage. They are a key risk metric evaluated during underwriting and asset management. Investors typically model stress scenarios to assess how much vacancy or income loss a property can absorb before generating a deficit.