Vacancy is really just a profitability calculation.

[Keenan Fitzpatrick]

Scenario 1: Presuming your renter took care of the unit, it can be cleaned and ready to re-rent within a few days. In today's market where I live, if I get notice of a tenant moving out, I will turn on the marketing for the unit a couple of weeks in advance of the move-out and I can usually dove-tail a new renter within 48 hours of the old renter moving out. Pretty much a zero vacancy situation.

Scenario 2: The renter damaged the apartment and it needs repair. Maybe it's just painting, maybe it is more? Now you have to figure out how fast you can get those repairs done. You more than likely can't dove-tail your marketing like you could with a seamless transition. If you can get immediate repairs made, you are probably talking about a week of repairs, and the marketing following shortly behind and a move-in within 2 weeks of that. So it might be 3-4 weeks in a good scenario.

Scenario 3: You have multiple vacancies at the same time and you are doing your own repair work. You can't get to the 2nd unit until you finish the previous unit needing repair. Now you can have a unit sitting idle for longer.

But to your question - do I put money away for vacancies? No. It's just lost income to your income stream. If you only have one rental, this may mean you are paying the mortgage for a unit if you are down for a month and it will 'get your attention'. When you have multiple units, you usually have enough cash flow that you will notice your bank account start going down as you don't get that rent payment for the month(s) that a unit is down. But the bank account just absorbs the loss and life goes on.

What we do is have a maintenance reserve account that we transfer $100/month / unit for simple repairs (ac / plumbing / etc). So for us, we are moving $3,700 / month into this account. While the account will float up and down, this figure seems to work out pretty well to absorb both the minor repairs, and the occasional bigger one. So it might get up to $7,000 - 10,000 dollars, but then we'll have an Air Handler or Air Compressor go out, and then it drops by $2,000 - $3,000 or $5-6,000. That little of a transfer won't usually handle Capital expenditures like a new roof, or a new septic field though.

Hope it helps!