Vacancy Rate

Percentage of time a rental property sits empty between tenants.

Definition

Vacancy is the silent killer of rental returns. Every month without a tenant is a month of zero income but continued expenses (mortgage, taxes, insurance). Standard underwriting assumes 5-8% vacancy (roughly 2-4 weeks per year). In practice, this covers tenant turnover, make-ready time between tenants, and occasional longer vacancies.

Formula

Vacancy Rate = Vacant Days / 365 × 100
Effective Gross Income = Gross Rent × (1 - Vacancy Rate)

Related Terms

Net Operating Income (NOI)

Gross income minus operating expenses, BEFORE debt service.

Debt Service Coverage Ratio (DSCR)

Net operating income divided by debt payments — can the property pay its own mortgage?

Educational content only. Consult a CPA or attorney for advice specific to your situation.