vacancy rates

Comments(3)

• 
  hibby769th June, 2003

  Don't fool yourself into believing certain numbers because they look better.
  
  Use the vacancy rate of that immediate area. People in the city know what reputation certain areas have. That is your direct competition. If you figure that it's 11% and the numbers work out, great. If it turns out to be 5%, Better. On the other hand, figuring low could put you into a neg. CF situation for a while.
  
  Drive around the neighborhood. Count the number of rentals, call the "for rent signs" in the area and ask how many vacancies they have. divide them and you know how many vacancies there are. It takes some work, but that will give you your best idea. Check out the "for rent" section in the newspaper also.
  
  I'm newish to all this and I am trying to calculate vacancy rate correctly as part of figuring NOI/value. I have a city's overall rate, and I can get a neighborhood's rate from census data. Should I just plug that in as a percentage deduction? In other words, should I take 5% off gross income (city), or 11% for the neighborhood? Sometimes this seems rather high.

• 
  nhs510009th June, 2003

  Thanks!
  Related question: Is there a cut-off rate that would just be unacceptable, period?

• 
  DaveT9th June, 2003

  I would approach this on a monthly vacancy track.
  
  If you are estimating a single unit property, one month of vacancy during a rental turnover is a vacancy factor of 8.33%. Each time you have a turnover, plan one month of vacancy while you do minor repairs, cleaning, and advertise for new tenant. You may accept an application before the month is up, but tenants commonly move in or out at the end of the month.
  
  If you have a five unit building, and expect no more than three units to turnover during a single year, then three months of vacancy for your building is a 5% vacancy factor (3 months of vacancy divided by 60 possible rental months).
  
  Survey management companies that serve your area. Ask them what vacancy period you should expect before they place a tenant. This may give you a feel for vacancy rates and turnover rates in your area.