Multiple units or single unit to hedge against vacancy

[Andrew M.]

I was wondering whether multi unit properties or single unit properties present more vacancy risks.

In one way I could single units safer because you can focus all your attention on the single unit, and because once you have a stable tenant your looking at guaranteed 0% vacancy.

On the other hand I could see multi unit being better because if a tenant walks out you are not necessarily facing 100% vacancies although you are probably likely to spend more time with more than 0% vacancy.

Any thought on this would be appreciated.

[Jon Holdman]

Which is to say that any particular unit is going to be vacant when one tenant leaves and another one comes in. Unless you're really luck, and luck's not much of a business plan, you're rarely going to collect all the rent during a year you theoretically collect.

With one unit, you'll have some time when there's no rent coming in. If the vacancy rate runs about 10%, that means roughly one month a year with no rent. With 100 units, its likely 10 of them are vacant all the time. Not the same 10, and some months it might be 5 and some months 15. But on averages with a 10% vacancy rate you'll collect 90% of your gross scheduled rent each month.

A better question is "what type of units have a lower vacancy rate?" If SFRs fill up quicker than apartments, then the SFRs would be better, based on the vacancy rate. OTOH, if you can be apartments that rent for $500 for $25K each, but you have to pay $100K for a SFR that rents for $1000, the apartments are a better deal even with a higher vacancy rate.