2
min read

Rental Property Vacancies: Key Terms and Formula

Vacancy rates offer keen insights into both markets and individual portfolios. Be sure to assess yours and what it means.

Calculating the vacancy rate for a rental property can be a challenging task. It is not something that every property owner or manager can do on their own. However, with a little research and some good old-fashioned math, it is possible to come up with a reliable prediction of the likelihood that a given property will be able to remain rented out. This article will outline a step-by-step formula to calculate the rental property’s vacancy rate. It will also cover some of the most common mistakes that property managers make when calculating the vacancy rate, and offer some practical tips for improving the accuracy of your calculations.

What is a Vacancy Rate?

A vacancy rate is a number of vacant rental units in a property as a proportion of the total number of rental units. The formula for calculating the vacancy rate is as follows: (number of vacant units) ÷ (total number of rental units) × 100.

How to Calculate Different Vacancy Rates

In addition to the simple, physical vacancy rate, there are also both economic and market average vacancy rates to note. Our first example is a 30-day month in which 8 of those days are vacant--the number of days vacant is 25%--then the vacancy rate is 25%. These types differ by the physical vacancy rate acting as the percentage of time that a rental is vacant, while the economic vacancy rate is the difference between the gross potential rent and the actual rent collected, and the market vacancy rate is the benchmark to which you should compare your rentals.

How Vacancy Rates Are Effected

One of the most significant challenges to operating rental properties and filling vacancies is that many of the factors that affect filling vacancies are outside of the landlord's control. These factors could stem from the economic state such as unemployment rates and other economic indicators. Landlords, however, do influence vacancy rates themselves and can make adjustments to ensure high capacity. These include:


- Ensuring fair rent prices

- Responding to and fixing maintenance requests in a timely manner (property management software can help)

- Accurately following laws and guidelines, especially in relation to landlord-tenant law

- Offering key amenities that other landlords in your market may frequently exclude or charge extra for (washer/dryer, storage locker, etc.)


Conclusion

Vacancy rates are an important indicator of how well a property is performing within its market. If you're in the market for a rental property, make sure to calculate the vacancy rate for any properties you're considering buying, and once renting properties, keep close tabs on these numbers to ensure your investment remains effective.