10.22.13 The Cost of Vacancy

I use a 5% vacancy loss for planning purposes.

Quarterly I calculate our percent occupancy, by comparing the days in the month to the days of paid rent received for each unit. Since starting in spring 2010, our running combined occupancy is 96%. One house is lowest at 90%, because we took extra time to replace the kitchen while it was empty. Stats compare well against the 85% threshold I sometimes hear.

But what is the true cost of vacancy? As I see it, there is lost rent when a deadbeat tenant still has occupancy but is not paying, lost rent when the unit is empty, and additional costs by replacing items a tenant has destroyed.

Deadbeat tenants currently owe us about $3,000 in unpaid rent. This is about $150/unit/year, or 3.8%.

We keep our days with the unit empty very low with focused self management - by marketing as soon as we have possession, showing the units at all times of the day, dropping almost everything to clean and prepare a unit, and processing the applications very quickly. I hate seeing the same rental units on Craigslist week after week; our ads are generally up less than a week.

Deadbeat tenants have had $3,600 in damage to our units itemized on deposit return letters. Since our area has very low deposits, most of the deposit funds only cover cleaning and unpaid utilities, so the damage is just our cost of renting to low income.

So while our occupancy rates are fantastic, we’re probably really at an 8% vacancy loss. Depressing, but still lucrative.