Glossary
Vacancy (vacancy rate)
Vacancy is the share of the year a rental sits empty. Investors set aside that percent of rent so cash flow still works when a unit turns over.
Every rental has gaps between tenants. Even a great tenant moves out eventually, and the unit needs cleaning, repairs and showings before the next lease starts.
The right rate depends on your market, the season you list in, the property's condition and how you price it. A house priced above market can sit much longer than one priced right.
How to calculate it
Vacancy allowance = monthly rent x vacancy rate. Run The Deal defaults to 5% for long-term rentals. You can change it to match your market and property.
- Monthly rent
- $2,000
- Vacancy rate
- 5%
- Monthly allowance
- $100
- Yearly allowance
- $1,200
5% of 365 days is about 18 days.
Where it fits
Vacancy comes off gross rent first. What is left is effective gross income, and operating costs come off that to get NOI. Most DSCR lenders do not subtract vacancy when they compute DSCR, but it still hits your cash flow.
Common mistakes
- Using 0% because the house is rented today.
- Using the same rate for a short-term rental. STR occupancy works differently; see STR.
- Forgetting turnover costs. Paint, cleaning and leasing fees usually come with each vacancy.
Test a higher vacancy rate in the rental property calculator to see how much room your deal has.
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