Vacancy Rate: What to Expect and How to Calculate It
Learn how to calculate vacancy rate, what rates to expect by market type and property class, and how vacancy impacts your NOI and cash flow. Includes tables showing the financial impact on a $2,000/month rental.
Vacancy rate measures the percentage of time a rental property sits unoccupied and produces no income. It is one of the most consequential variables in any rental property analysis — and one of the most commonly underestimated by new investors. A 3% vacancy assumption versus a 10% assumption on a $2,000/month rental changes annual income by $1,680. Over a 10-year hold, that compounding difference exceeds $20,000.
This guide covers how to calculate vacancy rate, what rates to expect across different markets and property types, and how to model vacancy accurately in your deal analysis.
The Vacancy Rate Formula
Vacancy Rate = (Vacant Days / Total Days) x 100
Or expressed in financial terms:
Vacancy Rate = Lost Rental Income / Potential Gross Income x 100
Example
A property rented for 11 months out of 12 in a given year:
Vacancy Rate = (30 / 365) x 100 = 8.2%
Or equivalently: one month lost at $2,000/month = $2,000 / $24,000 = 8.3% (the slight difference is due to month vs. day calculation).
For a portfolio of properties, vacancy rate is calculated across all units:
Portfolio Vacancy Rate = Total Vacant Unit-Days / Total Available Unit-Days x 100
A 10-unit building where 1 unit is vacant for 2 months and another is vacant for 1 month:
Vacancy Rate = (90 unit-days) / (3,650 unit-days) x 100 = 2.5%
Vacancy Rate Benchmarks by Market Type
Vacancy rates vary significantly based on market conditions, property location, and local supply-demand dynamics.
| Market Type | Typical Vacancy Rate | Notes |
|---|---|---|
| Strong urban markets (low supply) | 2% - 4% | Markets with housing shortages, high barriers to new construction |
| Stable suburban | 4% - 6% | Diversified economies, steady tenant demand |
| Average secondary markets | 5% - 8% | Standard turnover, adequate supply |
| Oversupplied markets | 8% - 12% | New construction outpacing demand, rent concessions common |
| Rural / tertiary markets | 8% - 15% | Limited tenant pool, longer lease-up times |
| College towns | 3% - 5% (in-season), 15% - 30% (summer) | Highly seasonal unless 12-month leases are enforced |
| Seasonal / vacation markets | 20% - 50% | Expected for short-term rentals; model with occupancy rate instead |
For short-term rentals, investors typically use occupancy rate (the inverse of vacancy) rather than vacancy rate. An STR with 70% occupancy has a 30% vacancy rate. Use our Airbnb calculator to model STR-specific occupancy and revenue scenarios.
Vacancy Rate by Property Class
Property class — a combined assessment of age, condition, location, and amenities — significantly affects vacancy:
| Property Class | Description | Typical Vacancy | Tenant Retention |
|---|---|---|---|
| Class A | Newer construction, premium locations, top amenities | 3% - 5% | High — tenants stay longer |
| Class B | Older but well-maintained, good locations | 5% - 8% | Moderate |
| Class C | Older, deferred maintenance, working-class areas | 8% - 12% | Lower — higher turnover |
| Class D | Significant disrepair, high-crime areas | 12% - 20%+ | Low — frequent turnover and evictions |
Class C and D properties often attract investors with their low purchase prices and high gross rent multipliers, but the elevated vacancy and turnover costs can erode those returns quickly. Always model the higher vacancy rate when analyzing lower-class properties.
How Vacancy Affects Your Income: $2,000/Month Rental
The following table shows how different vacancy rates impact annual income, NOI, and cash flow on a property renting for $2,000/month with $8,400/year in operating expenses (excluding vacancy) and a $1,400/month mortgage payment.
| Vacancy Rate | Vacant Days/Year | Annual Income Lost | Effective Gross Income | NOI | Annual Cash Flow |
|---|---|---|---|---|---|
| 0% | 0 | $0 | $24,000 | $15,600 | -$1,200 |
| 3% | 11 | $720 | $23,280 | $14,880 | -$1,920 |
| 5% | 18 | $1,200 | $22,800 | $14,400 | -$2,400 |
| 8% | 29 | $1,920 | $22,080 | $13,680 | -$3,120 |
| 10% | 37 | $2,400 | $21,600 | $13,200 | -$3,600 |
| 15% | 55 | $3,600 | $20,400 | $12,000 | -$4,800 |
| 20% | 73 | $4,800 | $19,200 | $10,800 | -$6,000 |
Key takeaway: the difference between 5% and 10% vacancy is $1,200/year in lost income. Over a 10-year hold, that is $12,000 — real money that comes directly off your return. This is why accurate vacancy estimation matters.
Run your specific scenarios through our rental property calculator to see how vacancy assumptions change your deal metrics.
The True Cost of Vacancy: Beyond Lost Rent
Lost rent is only part of the cost. Each vacancy event also incurs:
Turnover Costs
| Expense | Typical Cost | Notes |
|---|---|---|
| Cleaning | $200 - $500 | Deep clean between tenants |
| Paint / touch-up | $300 - $1,500 | Depends on unit size and condition |
| Minor repairs | $200 - $1,000 | Patch holes, fix fixtures, replace hardware |
| Carpet cleaning or replacement | $200 - $2,000 | Per room |
| Marketing / listing fees | $0 - $500 | May be included in PM fee |
| Leasing fee (if using PM) | 50% - 100% of one month’s rent | Common PM charge for placing new tenant |
| Total typical turnover cost | $1,000 - $5,000 |
Carrying Costs During Vacancy
While the unit is vacant, you still pay:
- Mortgage (P&I)
- Property taxes
- Insurance
- HOA (if applicable)
- Utilities (must keep on for showings)
- Lawn care / snow removal
For a property with $2,400/month in total carrying costs, every month of vacancy costs $2,400 in carrying costs plus $2,000 in lost rent — a total of $4,400. Two turnovers per year with one month of vacancy each costs $8,800 in lost rent alone, plus $2,000-$10,000 in turnover expenses.
How to Estimate Vacancy for Your Analysis
Method 1: Historical Data
If the property has existing tenants or rental history, use actual vacancy data:
- Get the rent roll from the seller showing move-in dates, move-out dates, and any vacancy periods over the past 2-3 years.
- Calculate the actual vacancy rate from the historical data.
- Add a buffer — if historical vacancy was 4%, model at 5-6% to be conservative.
Method 2: Market Data
For new acquisitions without rental history:
- Check Census Bureau data for your metro area’s rental vacancy rate (published quarterly).
- Ask local property managers what vacancy they are seeing across their portfolios.
- Check Apartment List, Zillow, or RentCafe vacancy reports for your market.
- Call 3-5 comparable rental listings and ask how long they have been on the market.
Method 3: Conservative Defaults
If data is unavailable, use these defaults:
- 5% for strong markets with low supply and high demand
- 8% for average markets
- 10% for weaker markets, older properties, or unproven locations
- 15%+ for Class D properties or markets with known oversupply
Always err on the conservative side. A deal that works at 8% vacancy but fails at 12% has very little margin for error.
Vacancy and NOI
Vacancy is subtracted from potential gross income to arrive at effective gross income, which then feeds into NOI:
Potential Gross Income (PGI)
- Less: Vacancy and Credit Loss = Effective Gross Income (EGI)
- Less: Operating Expenses = Net Operating Income (NOI)
Many investors make the mistake of calculating NOI using potential gross income (zero vacancy), which inflates the result. Professional appraisers and commercial lenders always apply a vacancy factor. For a full explanation of NOI calculation, see our guide to Net Operating Income.
This distinction matters for cap rate calculations as well. A property with $24,000 in potential gross income and 8% vacancy has an effective gross income of $22,080 — not $24,000. Using the wrong number inflates your cap rate and can lead to overpaying.
How to Reduce Vacancy
Price Competitively
The number one cause of extended vacancy is overpricing. A property priced $50/month above market may sit vacant for an extra month — costing you $2,000+ in lost rent to gain $600/year in higher rent. Price at or slightly below market to minimize vacancy days.
Improve Tenant Retention
The cheapest vacancy is the one that never happens. Strategies to keep good tenants:
- Respond to maintenance requests within 24 hours.
- Keep rent increases moderate (3-5% annually rather than large jumps).
- Allow reasonable customization (paint colors, small modifications).
- Offer lease renewal incentives (minor upgrades, frozen rent for an extra year).
- Treat tenants as customers, not adversaries.
Pre-Market Before Move-Out
Start marketing the unit 60 days before a known move-out. Show the unit (with tenant cooperation) while still occupied. Aim to have a signed lease for the new tenant before the current one leaves, reducing vacancy to the turnover-cleaning window (typically 3-7 days).
Maintain the Property
Well-maintained properties rent faster and attract better tenants who stay longer. Deferred maintenance is visible in listing photos and showings — peeling paint, dated fixtures, and broken features extend vacancy.
Screen Tenants Thoroughly
Bad tenants cause vacancy through eviction, early lease breaks, and property damage that extends turnover time. A thorough screening process (credit check, income verification, landlord references, background check) reduces the probability of problem tenancies.
Vacancy in Short-Term Rental Analysis
Short-term rentals handle vacancy differently. Instead of a small percentage lost to turnover, STR investors model an occupancy rate — the percentage of available nights that are booked.
Typical STR occupancy rates:
| Market Type | Average Occupancy | Peak Season | Off Season |
|---|---|---|---|
| Major tourist destination | 65% - 80% | 85% - 95% | 40% - 60% |
| Urban / business travel | 60% - 75% | 70% - 85% | 50% - 65% |
| Seasonal beach / mountain | 50% - 65% | 80% - 95% | 20% - 35% |
| Rural / unique property | 40% - 60% | 60% - 80% | 20% - 40% |
A 65% occupancy rate means 35% vacancy — far higher than long-term rentals, but offset by higher nightly rates. Model STR income using our Airbnb calculator which accounts for seasonality, cleaning fees, and platform fees.
For a detailed comparison of the two strategies, read Airbnb vs. Long-Term Rental.
Frequently Asked Questions
What vacancy rate should I use in my analysis?
For a standard long-term rental in a stable market, 5-8% is a reasonable assumption. Use 5% if the property is in a high-demand, low-supply market with a strong employment base. Use 8-10% for average markets or properties in less desirable locations. Always cross-reference with local data — ask property managers and check Census Bureau vacancy statistics for your specific metro area. See How to Calculate Rental Property ROI for how vacancy fits into the broader return calculation.
Is 0% vacancy realistic?
Over a short period, yes — many landlords go years without vacancy. Over a long analysis period (5-10 years), budgeting 0% vacancy is unrealistic and dangerous. Even the best property will have turnover eventually (tenants buy homes, relocate for jobs, or have life changes). Always model at least 3-5% vacancy even in the strongest markets.
How does vacancy rate differ from occupancy rate?
They are inverses: Occupancy Rate = 100% - Vacancy Rate. Long-term rental investors typically use vacancy rate (what percentage of time is the property empty). Short-term rental investors typically use occupancy rate (what percentage of available nights are booked). Both convey the same information from different perspectives.
Does vacancy affect my DSCR loan qualification?
Yes. DSCR lenders typically apply a vacancy factor (usually 5-8%) to the gross rental income when calculating DSCR. If the appraiser estimates market rent at $2,000/month, the lender may use $1,900/month (5% vacancy) for the DSCR calculation. This can push a borderline deal below the 1.0 DSCR threshold. Check with your lender on their specific vacancy assumption.
How do I track actual vacancy rate across my portfolio?
Track move-out dates, move-in dates, and rent collected for every unit. Calculate vacancy rate monthly and annually:
Monthly: Vacant days in month / Days in month Annual: Total vacant days / (Total units x 365)
Most property management software (Buildium, AppFolio, Stessa) calculates this automatically. Comparing your actual vacancy against your underwriting assumptions tells you whether your deals are performing as expected — and helps you refine assumptions for future acquisitions.