Vacancy Rate
Real Estate / CashflowVacancy rate is the share of time a rental property sits unoccupied and not producing rent. In underwriting, it is expressed as a percentage of gross income that gets subtracted to reflect the reality that no property stays leased 365 days a year, every year. A long-term rental in a stable market might assume a 5% to 8% vacancy rate; a short-term rental or a property in a weak demand area could easily reach 15% or more.
Why it matters. Vacancy is a silent expense: it does not arrive as an invoice, so beginners often forget to budget for it. But a single month of vacancy on a $2,000-per-month rental is $2,000 in lost income — equal to the entire year’s worth of a 10% property management fee on that same property. Underestimating vacancy is one of the most common ways an “11% cash-on-cash” deal on a spreadsheet becomes a 4% deal in real life.
Your local market vacancy rate is not your property’s vacancy rate. A poorly managed unit in a hot market can sit longer than a well-managed unit in a soft one. Good management, competitive pricing, and tenant retention practices reduce your personal vacancy below the area average. Budget the market rate, operate to beat it.
For building a complete operating budget including vacancy, see property management and costs. For how vacancy differs across cities and asset types, see best cashflow markets.