The Impact of Vacancy on Single Family and Small Multifamily vs.

[Rick Martin]

I always tell people when you lose a tenant in your single-family rental, you are 100% vacant, and when you lose one tenant in your 100 unit complex, you are 1% vacant. I was reminded of the power of diversification both this year and last with my one remaining Four-plex.

That red ink you see is the cost of tenant eviction. It was enough to bring my average annual COC% from 12% to 8%. A reduction of 25%. Ouch

Conversely, I would have to have 25 evictions on a 100-unit apartment syndication, or 75 on a 300-unit, to match that loss in return. This is pretty much impossible on a stabilized apartment.

Now I am contemplating selling the fourplex, as I was just gifted a $3000 punch-turn on my last tenant leaving. Again enough to reduce my return by 25% off the historical average.

Don’t forget to include the power of diversification and the economies of scale when evaluating your real estate investments. The speedbumps are much larger on the smaller stuff, and it is one of the reasons why I have been making the shift to apartment syndications.

[Erik W.]

I think of it this way:

10 SFH's with one empty = 10% vacancy.

A 10 unit complex with one unit empty = 10% vacancy.

Potaytoh, potahto.  In terms of vacancy rates only, I find little difference between the two rental types.  There are other Pros and Cons to weight when comparing MFs to SFHs, but I don't see vacancy as a determining factor.