Whether you’re a landlord, investor, or agent, knowing how to determine the vacancy rate is key to understanding a rental property’s health. It is the percentage of all rentable units in a property that are unoccupied and not generating income at a given time, which gives you an idea how much of the investment portfolio is sitting empty instead of earning.
In this article, I’ll break down the exact vacancy rate formulas, show you what a “healthy” rate looks like in today’s market, and identify factors that affect how quickly rental properties get leased.
Vacancy rate formulas: By unit count & by days vacant
Calculating the vacancy rate sounds technical, but the math is very simple and straightforward. Whether you’re looking at a single rental or managing a multi-unit property, the calculation doesn’t change much.
There are two common ways to compute it, and the right one depends on what you’re trying to measure.
- Vacancy rate by unit count: Use this when you need a quick snapshot of the number of units currently vacant. This is great for monthly reporting, multifamily properties, or property marketing analysis.
Vacancy Rate = (Number of Vacant Units ÷ Total Units) x 100
Example: If you manage a 10-unit apartment building and two units are currently empty:
(2 ÷ 10) x 100 = 20% vacancy rate
2. Vacancy rate by days vacant: Use this formula to evaluate how long units sit empty over a specified period. This is best used for tracking portfolio performance, seasonal trends, or lease turnover efficiency.
Vacancy Rate = (Vacant Days ÷ Rentable Days) x 100
Vacant days = The total number of days a unit was empty during the period.
Rentable days = Total possible days the unit could have been rented. It’s usually 365 days per year, per unit.
Example: You own a single-family rental that was vacant for 25 days this year:
(25 ÷ 365) x 100 = 6.85% vacancy rate
What’s a “healthy” vacancy rate?
No single number fits every market, but industry consensus puts a “healthy” vacancy rate for residential rentals between 5% and 8%.1 This range generally indicates a stable balance: your properties aren’t flooded with empty units, and you’re also not drastically underpricing or overcharging.
To help you make sense of the numbers, here’s a loose framework I like to use when reviewing vacancy rates. It’s not official, but it’s a useful gut check:
- 0% to 4% – This looks great on paper, but it might also mean your rent’s too low or you’re not pushing for market-rate turnover. A little vacancy can actually be healthy.
- 5% to 8% – The sweet spot. This typically indicates that your pricing is solid, demand is consistent, and your leasing process is effective.
- 9% to 12% – Slightly high. It could be due to slower leasing, aggressive rent increases, or poor timing (like marketing a property in the off-season).
- 13%+ – Worth investigating. Perhaps your rent is too high, your listing isn’t generating any traction, or the property itself needs updates to remain competitive.
Take note that vacancy rate benchmarks can vary by location, property type, and season. A 10% vacancy rate might be typical for a student rental market during summer, but it is a red flag in a major city where demand is usually high.
Factors influencing the vacancy rate
Several factors affect how quickly a rental property gets leased and how long it stays occupied. Some of these are within your control, while others depend on the market you’re in. Here are the most common reasons for vacancy increases and what you can do about each one:
-
Too much new inventory nearby:
When tons of new rentals hit the market at once, renters have more options. Work on marketing your rental and do a rental market analysis (RMA) to see if there are points for improvement in your strategy.
-
Overpriced rent:
Even being $50 over the market average can leave a unit sitting vacant. Renters today are savvy: most compare five or more listings before even touring. If you’re not getting inquiries, run a comp check and consider a price drop or incentive.
-
Seasonality:
Rental demand often dips in winter months. If your leases keep ending in November or December, adjust the lease term length to 14 or 18 months. This way, the next vacancy ends in spring or early summer.
-
Property condition or curb appeal:
Dated kitchens, poor lighting, or bad listing photos can tank interest before a tour even happens. Fresh paint, clean landscaping, and a few low-cost upgrades go a long way in reducing vacancy.
-
Poor listing marketing and exposure:
If your listing is only posted on your website, you’re invisible. Ensure that you use listing platforms like Apartments.com and Zillow, and consider a short video walkthrough to boost engagement. For more exposure, go for one of our top-recommended listing sites for rentals.
-
Slow turnovers between tenants:
If it takes you a week or more to clean, repair, and relist a unit, you’re adding a vacancy that’s totally avoidable. Build a tight turnover timeline with vendors ready to go.
-
Low tenant retention:
If your tenants are leaving every year, that’s a red flag. A small renewal incentive, such as a smart home upgrade or a gift card, can be more cost-effective than an empty unit for 30+ days.
-
Understaffed or overloaded property managers:
When your property manager is juggling too many units or doesn’t have enough support staff, things start slipping. If leasing is slow, it may be time to scale up your management resources.
Why vacancy rate matters for investors and agents
For investors, the vacancy rate is a signal of profitability. For agents, it’s leverage for smarter pricing and marketing. Here’s how investors and agents use the vacancy rate:
- Cash-flow forecasting: Even a 5% vacancy can shave thousands off annual rent receipts. Knowing your rate up front means you’re never caught off guard by a gap in your bottom line.
- Market health indicator: A sudden spike in vacancy could signal rental property oversupply or waning demand in your neighborhood. This is vital intel whether you’re buying, selling, or refinancing.
- Pricing and positioning: If your vacancy rate exceeds the local average by 2-3 points, you may need to adjust your rent, beef up your marketing, or upgrade your amenities to remain competitive.
- Strategic planning: By tracking month-to-month or quarter-to-quarter trends, you can pinpoint seasonal slowdowns, test the impact of rent increases, and schedule renovations to maximize occupancy.
- Risk management: Lenders and partners scrutinize vacancy closely. Consistently low vacancy rates translate to lower risk profiles, which can unlock better loan terms or attract joint-venture equity.
Vacancy rate vs occupancy rate
Vacancy rates and occupancy rates are closely related — in fact, they’re pretty much two sides of the same coin. Put simply, vacancy rate tells you what isn’t rented, while occupancy rate tells you what is.
They measure the same thing from opposite angles, and together they give you a complete picture of how a rental property or portfolio is performing.
| Vacancy rate | Share of units (or days) that aren’t producing rent | (Vacant ÷ Total) x 100 | Lower is better. This signals lost revenue and leasing friction. |
| Occupancy rate | Share of units (or days) that are producing rent | (Occupied ÷ Total) x 100 | Higher is better. This highlights cash-flow strength. |
Frequently asked questions (FAQs)
What is the best way to determine a vacancy rate?
The best way is to track how many days your unit sat vacant over a set period (usually a month or a year) and divide that by the total rentable days. That formula will give you a time-based vacancy rate, which is more accurate than just looking at a single moment in time.
What is the formula for calculating vacancy?
There are two main formulas for calculating the vacancy rate:
- By units: (Vacant Units ÷ Total Units) x 100
- By time: (Vacant Days ÷ Rentable Days) x 100
Use the unit-based formula if you want to know how many rentals are currently sitting empty. Use the time-based one to track performance over weeks or months.
How to calculate the vacancy allowance?
Vacancy allowance is the percentage of potential rental income you expect to lose due to empty units. Multiply your gross scheduled rent by your estimated vacancy rate to calculate how much income to set aside.
Source
Add comment