Formula for vacancy rate on multiple houses?

Question

What would be a standard way to calculate a vacancy percentage on multiple houses across a portfolio for an entire year, based on days vacant?

Seems standard and easy but I am finding conflicting answers. Thanks-

Bill S. · Answer

I guess I read your question different than others. To figure vacancy rate for multiple properties add up all the days in the year that each unit was vacant and divide by the 365 times the number of units.

Ie 10 units with 3 units vacant 2 weeks , 1 unit vacant 1 month and 1 unit vacant/non-paying while doing eviction 2 months.

3 x 2 x7 = 42

1 x 30 = 30

1 x 2 x 30 = 60

total days vacant is 42 + 30 +60 = 132

number of rent days 365 x 10 = 3,650

vacancy rate = vacant days/rent days = 132/3,650 = 3.6%

If you want to compare against how the competition is doing, many local apartment associations publish vacancy rates. Around here we have been in the low 5% range for the past couple of years. There have been times in the past that the vacancy rate was mid double digits (~15%). Lenders I have spoken with use 10% if you don't have data to prove otherwise.

Kenneth LaVoie · Answer

I echo 8%. -- If you can use 16%, I'd strongly encourage that because it adds a buffer. 2 months and one eviction and you're at 32% so 16% is not a stretch. The problem with being too conservative of course is that by the time you're done, the spreadsheet tells you that you can only pay 9K for a house! haha!!

All in all, 8% will NOT steer you too far wrong one way or the other. In fact, I'd say 7% is the LOWEST to go, which would represent 12 months occupied, followed by 1 month vacant (i.e. 1 out of 13 months vacant)

Patrick K · Answer

Bill S. "I guess I read your question different than others."

You read it correctly, and thanks to everyone else chiming in but that was what I am looking for.

So if I have 7 houses which had a total number of 65 vacant days between them over the course of 2 years would the following math be correct?

Vacany = 65 Vacant days total in 2 years

Timeline = 2 years = 365 days in a year X 2 (for 2 years) = 730 total days

7 single family houses

65/5110 = 1.2%

Could this possible be right?.

Tim Soto · Answer

Great insights from everyone. I find it difficult to determine the going vacancy rate when you have a portfolio of houses spread out in different areas, unless you use the historical data of that portfolio. But, you also must figure in the prior or current management efficiency/inefficiencies of that portfolio compared to your own management model. I would usually call a broker in the area where the property or properties are located and ask about the going vacancy rate in that area for that type of property. A broker, who's also a property manager, can also give you the ave. days vacant for such property. I would suggest that anything better/lower than 10% vacancy rate is not a problem. If the portfolio has a vacancy rate higher than 10%, then I see that as an opportunity to get that portfolio at a better discount. I hope it was helpful.

James Syed · Answer

@Patrick K Vacancy rate is local. There is no one vacancy rate that applies to all real estate markets. Historically speaking, metropolitan cities have an average of 5% vacancy rate and smaller towns are usually 10%. In some cases it's all the way to 25%.

I personally use minimum of 10% to be on safe side. Check with local appraisers and commercial real estate agents.

Hope it helps.

Sharon Tzib · Answer

Looks to me like you did it right! Nice!

Patrick L. · Answer

I usually factor in 8%, which allows for just under 1 vacant month per property per year.  That being said you can find some types of properties in some areas where you could have 3% and others where you could have 20%.

Mike Simmons · Answer

Rentals are not my specialty, but I have interviewed all lot of buy-and-hold real estate investors. It seems to me that it is common to assume each rental will have 1 to 2 months worth of vacancy per year. 2 would be more conservative obviously. I would say to assume that you'll have at least 1 months of vacancy on average per rental.

Formula for vacancy rate on multiple houses>?

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