Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A building never collects its full potential rent, and the gap is vacancy and unpaid rent. Twelve units at $1,800 a month have potential rent of $259,200 a year. With a 7 percent vacancy and credit loss rate and $5,000 of concessions, the loss is about $18,144 plus the concessions, and effective income falls to about $236,056. The vacancy rate is an assumption, and each point of it is worth about $2,592 a year here.
Before you rely on it
What to check
Use the vacancy history of your own property and market, and include months lost between tenants and evictions, not only empty units.
The common error
Where people go wrong with rental vacancy loss calculator
Underwriting at 100 percent occupancy. The purchase price often depends on income, so a small vacancy assumption becomes a large error in value.
Sensitivity evidence
How monthly rent per unit changes the estimated annual vacancy loss
| Monthly rent per unit | Estimated annual vacancy loss | Effective annual rental income | Potential gross annual rent |
|---|---|---|---|
| $1,440 | $14,515 | $187,845 | $207,360 |
| $1,620 | $16,330 | $211,950 | $233,280 |
| $1,800worked example | $18,144 | $236,056 | $259,200 |
| $1,980 | $19,958 | $260,162 | $285,120 |
| $2,160 | $21,773 | $284,267 | $311,040 |
Every input, tested
Which input moves the estimated annual vacancy loss most
| Input | Tested from | To | Estimated annual vacancy loss at each end | Swing |
|---|---|---|---|---|
| Vacancy and credit-loss rate | 6.0% | 8.0% | $15,552 to $20,736 | $5,184 (29%) |
| Monthly rent per unit | $1,620 | $1,980 | $16,330 to $19,958 | $3,629 (20%) |
| Rental units | 11 | 13 | $16,632 to $19,656 | $3,024 (17%) |
| Annual concessions | $4,500 | $5,500 | $18,144 to $18,144 | none |
Two variables at once
Estimated annual vacancy loss by monthly rent per unit and rental units
| Monthly rent per unit \ Rental units | 10 | 12 | 14 |
|---|---|---|---|
| $1,440 | $12,096 | $14,515 | $16,934 |
| $1,620 | $13,608 | $16,330 | $19,051 |
| $1,800 | $15,120 | $18,144 | $21,168 |
| $1,980 | $16,632 | $19,958 | $23,285 |
| $2,160 | $18,144 | $21,773 | $25,402 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Monthly rent per unit | $1,800 |
| Rental units | 12 |
| Vacancy and credit-loss rate | 7.0% |
| Annual concessions | $5,000 |
| Estimated annual vacancy loss | $18,144 |
| Effective annual rental income | $236,056 |
| Potential gross annual rent | $259,200 |
Where the inputs come from
Monthly rent per unit and the number of units give the potential gross rent, the vacancy and credit-loss rate is the share you expect to lose to empty units and unpaid rent, and annual concessions are discounts such as free months or reduced rent. Use your local market's vacancy rate or your own history, not zero. Many investors underwrite at 5% to 8% for stable areas and more for seasonal or weak ones. Include time to turn units between tenants.
When the result stops applying
The rate is an average, and a single large unit vacancy in a small building has more effect than a percentage suggests. Credit loss, meaning unpaid rent and evictions, can be significant in some markets. Concessions may be larger in a soft market. Seasonal areas have peaks and troughs within the year.
What to compare it with
Use the result in the NOI and cap rate calculators, and check safety with the break-even occupancy page. The rent increase calculator shows how vacancy interacts with pricing, and the property management fee page prices leasing help. Track your actual vacancy so the estimate improves.
People also ask
Frequently asked questions
What vacancy rate should I assume?
Many investors use 5% to 8% for stable residential markets, and higher for older buildings, seasonal areas or soft markets. Check local rental vacancy data.
What is credit loss?
Rent you are owed but do not collect because of late payments, evictions or tenants who leave without paying.
How do I reduce vacancy?
Price competitively, keep units in good condition, respond quickly to inquiries, screen tenants carefully and start marketing before a lease ends.