How to judge vacancy rates?

Question

Hi,

I'm wondering what's the best way to know what the vacancy rate is in a particular area, zip code, city, whatever.  I've been using Sperlings (www.bestplaces.net), but sometimes I wonder how accurate and up to date their data is.  Any suggestions?

Craig Grella · Answer

You can find vacancy rates from several areas.  The first is the census.  Depending on what area you're looking in, they may have 2008 info reported on quick stats.
SEcond would be to try local RE firms like CBRE, Grubb&Ellis, etc.  They usually give out free market reports on a local level.
You could call an appraiser who has access to tools the above companies have.
You can also do a demographic analysis of the area taking into account housing stock and demand.
You can call your local bureau of economic analysis - they usually keep this info on a yearly basis as well.

Michael Rossi · Answer

I don't know how any website could know the vacancy rate in any given area - especially if you're talking about the vacancy rate in SFHs and small multis.  The vacancy rate is always changing and can vary significantly month to month.  It can also vary significantly based on rapidly changing economic conditions.

Even more important than knowing the current vacancy rate is knowing what the vacancy rate is likely to be in the future.  That can be greatly influenced by local conditions, such as the closure of a major employer.  You won't find that information on a website.

The bottom line is that the BEST way to find the vacancy rate is to be plugged into your local economy.  Talk to the other successful landlords in the area and keep up to date on the local news.

Mike

Bryan Hancock · Answer

You can set your vacancy rate to whatever you want it to be by raising or lowering rents.  If you keep shaving rents and have a 5% vacancy rate it generally optimizes your income.

Alex Aronson · Answer

I would try contacting some of the larger property management companies and ask what the vacancy rate is for the properties they manage as a whole and what the vacancy rate for the neighborhood you are interested in.

Mark B · Answer

Another tip is to drive the area.  Basically, you want to buy where apartments are all occupied.  Simply look for the tell tale "signs" - literally.  If you see alot of vacancy signs and the yellow banners that say "first month free", or even bigger promotions, this will tell you what you need to know.  It won't be an exact percentage, but it will giev you an idea of that specific market.

Kelvin K. · Answer

I just came across this old topic, as I am researching vacancy as well. But you can also find some good vacancy statistics on the us census website.

Josh Keys · Answer

Bumping this thread, as I would also like some information on vacancy rates.  
          
          Of course, I understand that there is no substitute for being on the ground and doing the legwork yourself, but I have found certain websites (eg yahoo real estate, homefinder, homepath and even the rather outdated bestplaces) to be fairly useful sources of general vacancy rates.   Especially, for an out of towner like me...   
          
          Anyone know of any other good sites or methods?

Will Barnard · Answer

Looking back in history can be a great insight to the future. If an area has had a vacancy range of 7%-10% over the last 30 years, odds are they will continue and you should plug in the max (10%) in that senario to your calculations. You should also complete enough due diligence to expose any current, future, or expected changes in the local economy as it could have a strong bearing on the future projections.

Dan McGehee · Answer

It also depends on what component of "vacancy rate" you are trying to really gauge.  While many will just say "5%", sometimes it is much easier to construct the vacancy rate on your own, gauging each of the three factors independently and then aggregating them.

If you are trying to estimate "turnover", you should speak to property managers, browse rental listings etc.

If you are trying to guage "credit loss" I'd also talk with managers and any land lords in the immediate area.  You can also utilize your due diligence sources. The big thing to note is "credit loss" is often very dependent on the class and location of the property.  If you have class C apt buildings in a rougher part of town, factor that it and put additional cushion for "credit loss".

Finally, with "rent concessions" you can once again talk with managers.  This is one where I believe that you can be more creative with.  For instance, search the local rental listings and see if they are offering any concessions (they are not always explicitly advertised).  If so then I always go 1.5x the "typical" concession.  However, you can also predict it based on your sense of the absorption of the market.  If there are a lot of available units, and a soft market, count on making more concessions.

Rob Lawrence · Answer

There is no substitute for on the ground viewing. You can't do that a computer.

How to judge vacancy rates?

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