How do you determine vacancy rates

Question

This is obviously a very important measure of success of a multi-family complex.  However, we have approximately 90 units and are looking to expand, so the calculation becomes a little tricky.

i am looking for some ideas how others quickly determine vacancy rates at the end of the year. in the past i have taken our current rent roll (assuming 100% full) and compare to the annual income.  i know it has some holes due to rent increases during the year that may skew the numbers.

So, if someone asks you what is your vacancy rate, how do you answer the question?  if you say a %, how are you calculating it.

thanks

Michael Blank · Answer

There’s vacancy rate, and there’s actual rents collected. I bought a 12-unit apartment a few years ago with a 10% vacancy rate. After looking into the seller’s bank deposits, I discovered that half of the tenants were chronically behind, some of them many months. So the seller was only collecting half the rents in some months! Make sure to also verify the actual rents collected with either bank deposits or tax returns. Otherwise, get out of your contract or re-negotiate the deal based on actual income.

Michael

Joel Owens · Answer

Vacancy usually is looked at month to month and then a cumulative average for the year.

The trending of rent rate (up, down, flat), concessions of new rentals (security deposit reduced or zero, first months rent reduced or zero), occupancy increasing or decreasing in most recent months, number of seasoned tenants (years) versus new turnover tenants due to high eviction rates.

Most lenders want 85% occupancy or longer over preferably a year or long with most looking at 90% or higher. Anything below 10 to 15% vacancy average regular funding gets hard for the asset.