Definition
Vacancy rate
Vacancy rate is the share of gross potential income lost to empty units and uncollected rent. Underwriting a single-family rental at 5% is roughly one turn every two years with a month of downtime; class C multifamily is routinely underwritten at 8% to 10%.
Vacancy loss = gross potential income × vacancy rate
Worked example
5% of $32,700 of potential income is $1,635 a year, or about 18 days of rent.
Every example in this glossary uses the same deal: a $265,000 duplex renting for $2,650 a month, bought with 25% down at 6.75% over 30 years, producing $19,310 of net operating income.
The mistake to avoid
Where this is calculated
The rental property calculator computes this from your own numbers and shows the arithmetic expanded. The full underwriting model: NOI, cap rate, cash-on-cash, DSCR, amortisation, a 30-year projection and a printable deal report.
Related terms
- Net operating incomeNet operating income is what a property earns after vacancy and operating expenses but before any mortgage payment, depreciation or income tax.
- Effective gross incomeEffective gross income is gross potential income minus vacancy and credit loss.
- Operating expensesOperating expenses are the recurring costs of running the property: taxes, insurance, management, maintenance, utilities the owner pays, HOA dues, and a reserve for capital replacement.
Back to the full glossary — 20 terms with formulas and worked examples.