What Is Vacancy Rate?

Vacancy rate is one of the most straightforward metrics in rental property management, and one of the most impactful. Every day a unit sits empty is money you will never get back. There is no catching up. No late payment to chase. That income is just gone.

Understanding and managing your vacancy rate is the difference between a property that makes money and one that barely breaks even.

How to Calculate Vacancy Rate

There are two ways to look at it.

Point-in-time vacancy rate: How many units are empty right now?

Vacancy Rate = (Vacant Units ÷ Total Units) × 100

If you have 10 units and 1 is empty: 1 ÷ 10 = 10% vacancy rate.

Annual vacancy rate: How many unit-days were vacant over the year?

Vacancy Rate = (Total Vacant Days ÷ Total Available Days) × 100

10 units × 365 days = 3,650 total available days. If Unit 3A was vacant for 45 days and Unit 7B for 30 days: 75 ÷ 3,650 = 2.05% annual vacancy rate.

The annual calculation is more useful because it smooths out the timing. A property might be 100% occupied today but had a vacancy earlier in the year. The annual rate captures that.

What a Normal Vacancy Rate Looks Like

• Below 3%: Very tight market. You might be underpricing rent. Consider a rent increase.
• 3-5%: Healthy range. Low vacancy with reasonable pricing.
• 5-8%: Average. This is the range most landlords budget for when calculating NOI.
• 8-10%: Above average. Check your pricing, marketing, and property condition.
• Above 10%: Problem. Something is wrong. Price, location, property condition, or management.

The national average for residential rentals is typically around 6-7%. But this varies enormously by market. College towns have seasonal vacancy spikes. Military base areas see turnover with deployments. Resort towns have off-season vacancies. Know your local market norms.

The Real Cost of Vacancy

Vacancy costs more than just lost rent. Here is what a single turnover actually costs for a $1,300/month unit:

• 30 days vacant: $1,300 in lost rent
• Turnover cleaning and repairs: $500-1,500
• Marketing and showing time: $200-400 (your time has value)
• Tenant screening costs: $50-100
• Total cost of one turnover: $2,050-3,300

If you have 10 units and average 1.5 turnovers per year, that is $3,075-4,950 in annual turnover costs. Multiply that across your portfolio and vacancy becomes one of your biggest expenses. This is why tenant retention matters so much.

How to Reduce Your Vacancy Rate

Price competitively. An overpriced unit that sits vacant for 60 days costs more than pricing it $50/month lower and filling it immediately. Do the math. $50/month × 12 months = $600 less per year. 60 days vacant = $2,600+ lost. Pricing right wins.

Start marketing before the current tenant leaves. The moment you know a tenant is not renewing, list the unit. Show it while the current tenant is still living there (with proper notice). Your goal is zero days of vacancy between tenants.

Make turnovers fast. Have your make-ready process dialed in. Cleaning crew, painters, and contractors should be on speed dial. A turnover that takes 5 days instead of 21 saves you over $850 in lost rent on a $1,300 unit.

Keep good tenants. The cheapest unit to fill is the one that never goes vacant. Respond to maintenance requests quickly. Be professional. Offer reasonable lease renewal terms. A small rent increase is better than a vacancy.

Screen well. Bad tenant screening leads to evictions, which lead to vacancies, which lead to lost income. The 30 minutes you spend screening a tenant upfront saves you months of problems later.

Vacancy Rate in Your Financial Projections

When calculating effective gross income, always subtract a vacancy allowance. Even if your property is currently full. A standard assumption is 5%.

Gross potential rent: $156,000/year (10 units × $1,300/month)
Less 5% vacancy: -$7,800
Effective gross income: $148,200

Lenders will use a similar vacancy assumption when evaluating your loan application. If your rent roll shows 100% occupancy, they will still deduct 5-7% for vacancy in their underwriting.

Common Mistakes With Vacancy

Not tracking vacancy days. If you do not know how many days each unit was vacant last year, you cannot improve. Track move-out date and move-in date for every turnover. The gap between them is your vacancy period.

Assuming 0% vacancy. Even the best properties in the best markets have turnover. Budgeting for 0% vacancy is setting yourself up for a cash flow surprise.

Prioritizing rent amount over occupancy. A unit rented at $1,300 is generating income. A unit listed at $1,400 that sits vacant for 2 months cost you $2,600 in lost rent to gain $100/month. It takes 26 months to break even on that decision.

Frequently Asked Questions

What is a good vacancy rate for rental property?

Below 5% is healthy. The national average is typically 5-8% for residential rentals. Below 3% suggests you might be underpricing rent. Above 10% signals a problem that needs attention.

How do you calculate vacancy rate?

For a point-in-time rate: Vacant Units ÷ Total Units × 100. For annual rate: Total Vacant Days ÷ Total Available Days × 100. The annual rate is more useful for financial analysis.

How does vacancy affect my income?

Every vacant day is permanent lost income. A $1,300/month unit vacant for 30 days costs $1,300 in rent plus $750-2,000 in turnover costs. Reducing vacancy is the fastest way to increase your bottom line.