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When you own rental property, the goal is to keep people in those properties as much as possible to have rent money coming in as much as possible. Some amount of vacancy is inevitable, even if it’s the short time between moving one tenant out and another in.
But an empty property makes no money, so it’s important to know how to calculate vacancy rate so you can keep an eye on this important metric. There are many reasons a property might stand vacant. The rental vacancy rate of your property compared to the market can help you determine if your rent is too high or low or if the neighborhood might be less desirable.
Let’s take a look at calculating the vacancy rate so you can monitor your property’s potential versus its performance.
Basic Vacancy Rate Formula
The basic formula is a simple percentage garnered from dividing the number of vacant days by the number of potential rentable days. If you have a property that stood vacant for three weeks this past year, that would be 21 vacant days divided by 365 potential rental days, or a 5.8 percent vacancy rate.
Occupancy rate is the opposite formula, dividing rented days by rentable days. The two together should always equal 100 percent.
Portfolio Calculations
Where things start to get a little more complicated is when you start dealing with different properties or your entire portfolio. Each individual rental can have a different rate that can vary greatly from the overall portfolio.
The formula of vacant days divided by potential rental days remains the same. The numbers are just added across all your properties to get a total number of vacant days. The potential rental days for a year becomes 365 times the number of properties.
This formula works for single-family homes as well as multi-unit properties.
Types of Vacancy Rates
When calculating vacancy, it’s important to consider what type of rate you’re calculating. The basic formula used above gives an average rate for the year, which is a standard way of looking at it for single-family homes.
However, with multifamily properties, vacancy rate is often cited in terms of what’s vacant at the moment. If you have 100 units in your building and six of them are vacant right now, the vacancy rate is 6 percent in real-time.
The economic vacancy rate takes a closer look at the amount of money lost due to the vacancy. To calculate it, you would take the amount of rent lost due to vacancy and divide it by the total potential rent you could have collected if it had been rented all year long.
How to Calculate Vacancy Rate
Calculating vacancy rate lets you see how a property is doing overall and compare its performance to the market average. You want to keep the rate as low as possible to ensure you get the maximum cash flow for a property, but too low might indicate you could increase rents without hurting occupancy.
If you need help with how to calculate vacancy rate or get a market average for comparison, contact our property management experts to talk about the rates you can expect and run a vacancy rate calculator for your area.
