Vacancy Rate
The percentage of time a rental property is unoccupied and not generating income.
Definition
Vacancy is the silent killer of rental returns. A property with $1,500 monthly rent loses $1,500 for every month it sits empty, and it usually takes another $500 to $1,500 to turn the unit (cleaning, paint, touch ups, showings). One extra vacant month a year drops your annual return by 8%. Most investors underwrite deals assuming 5 to 8% vacancy, but reality varies wildly by market, tenant quality, and PM aggressiveness. Section 8 properties in stable Birmingham neighborhoods can run 2 to 4% vacancy. Class C properties with frequent evictions can run 15 to 20%. Short term rentals in seasonal markets can hit 40 to 60% low season vacancy. Track actual vacancy per property, not market average, and be honest with yourself when you underwrite. A deal that only cash flows at 5% assumed vacancy probably does not cash flow at the real 10% you are going to experience.
Formula
Example
A unit was available to rent for 365 days and was vacant for 18 days between tenants. Vacancy rate = 18 / 365 = 4.9%.
Frequently asked
What is a normal vacancy rate for rental property?
5 to 8% is the standard underwriting assumption. Section 8 in stable markets can run 2 to 4%. Class C can run 15%+.
How do I reduce vacancy?
Price competitively, pre market 30 days before lease end, respond to leads within 2 hours, and maintain the unit so it shows well.
Should I include vacancy in my underwriting?
Always. Use 8% unless you have real data that supports a lower number for your specific market and tenant profile.
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