Real Estate Investing Glossary
Vacancy Rate
Last reviewed 2026-07-15
Vacancy rate is the share of time (or units) a rental sits empty and unpaid, subtracted from gross rent when underwriting income.
What is vacancy rate?
Vacancy rate measures lost rental income from empty units. For a single property it is the fraction of the year the home sits unrented; for a portfolio or market it is the share of units vacant at a point in time. Underwriters convert it into a dollar haircut: a 5% vacancy allowance on $24,000 of annual rent removes $1,200 from projected income before expenses.
Even a well-run single-family rental experiences vacancy through tenant turnover: a tenant leaves, the unit needs cleaning and paint, and marketing plus screening takes time. One month of vacancy every two years is roughly a 4% vacancy rate. Markets with strong demand may run 3% to 5%, while soft or seasonal markets can exceed 10%.
Vacancy compounds with turnover costs, make-ready repairs, leasing fees, and concessions, which is why experienced landlords focus heavily on tenant retention. A $50 rent increase that pushes out a good tenant can cost far more than it gains once a vacant month and $2,000 of turnover expenses are counted.
Formula
Vacancy rate = vacant days ÷ total available days × 100 (or vacant units ÷ total units × 100)
Worked example
A rental leases for $1,800 per month. Over four years it sits vacant a total of 2.4 months between tenants. Vacancy rate = 2.4 ÷ 48 = 5%. Underwriting at 5% means budgeting $1,080 of lost rent per year ($21,600 × 0.05).
Frequently asked questions
- What vacancy rate should I use when analyzing a rental?
- A 5% allowance (about 18 days per year) is the standard starting point for single-family rentals in healthy markets. Use 8% to 10% for student rentals, seasonal markets, rough neighborhoods, or properties with historically high turnover, and never use 0% even if the current tenant seems permanent, every property eventually turns over, and the allowance also absorbs collection losses.
- How can landlords reduce vacancy?
- Retention is the biggest lever: respond to maintenance quickly, keep rent increases modest for good tenants, and offer renewals early. When turnover happens anyway, pre-market the unit during the notice period, have contractors scheduled for make-ready work the day after move-out, and price at market rather than testing above it, two extra weeks vacant costs more than a slightly ambitious rent gains.
Related terms
Related tools and guides
Browse all definitions in the Real Estate Investing Glossary.