Vacancy rate And trailing 12

[Keith Johnson]

Small multi family 3 to 6 units what financial. Records should I ask for most smaller buildings doesn't have a trailing 12  or t12 to use and how do I determine the vacancy rate of a small building 

[Arn Cenedella]

@Keith Johnson

To a large degree, you as owner will control the vacancy rate. Let me explain.

One can keep vacancy at zero or close to it, if your rents are slightly below market.

To the degree you want to push rent amounts will also impact and determine your vacancy rate. If you overshoot the market for rent, your units will sit in market and your vacancy rate will increase. If you are spot on market with asking rents, your vacancy will be lower.

Do the units need renovation? If so, how long will it take you to renovate each unit? That will impact vacancy rate.

How you choose to operate the property will have huge impact on vacancy rate.

So there is NO magic number on vacancy.

There’s a trade off between pushing rents and maintaining occupancy. You as owner will decide what biz plan fits you and the property best.

You might plug in 10% for a rough estimate.

What does 10% mean for a four unit building?

4 units 12 months creates 48 rental payments.
10% would mean 4.8 missed rental payments - let’s say 5.

So that would mean 3 units vacant one month a year and 1 unit vacant two months a year.

Are current rents at market? You can probably renew most leases and keep existing tenants - low vacancy. Are rents way below market and you want to increase to market, higher vacancy should be anticipated ? If units need work, higher vacancy should be anticipated.

So the answer is it depends - on current rents, property condition, and your overall business plan.

If you need to upgrade tenants and rental rates expect high vacancy 25% or more year one. Once stabilized ballpark 10%.

I once bought a fourplex - poor condition very low rents.

I vacated everyone and spent $40,000 a unit to totally renovate each unit, took 6 months to get all the work done. Then I rented the units. My year one vacancy was 50% 😀 but I didn’t care, it was required to implement the plan as I saw best.

Hope this helps…..vacancy isn’t a fixed number……think about the property and what you want to do, come up with a game plan and then once that is decided you can determine vacancy.