Vacancy rate estimates for studios

1 Reply

I'm considering buying an 11-unit property (all studios) in Cincinnati, OH, in Silverton. It's in a B- area and most units have been recently rehabbed and are occupied at $475/mo, but the rental history doesn't go far back enough to know if these are long-term, stable tenants or not. I think rents could be raised to $495 per unit, but that's not a huge value-add, and I'm concerned that with these being studios, expected higher turnovers would kill the deal. What would you use to calculate for vacancy rates in this situation? Usually, I would use 5% for a better unit mix, 10% if the property were in a worse neighborhood. Would I be safe to assume 10%? What's your experience with turnover rates for studios? Also, is the vacancy rate supposed to account for the cost of turnover? E.g. if my property manager would charge one month's rent in order to find a new tenant, in addition to the lost rent while the unit sits empty plus the turnover costs (painting, carpet cleaning, etc), shouldn't vacancy rates be padded even further? I will be getting more details on the condition and the income / expenses soon and will share then! Thanks ahead for any tips.

@Aliz Rao,

I usually calculate cost of turnover and vacancy separate. Cost of turnover can vary from each door, depending on the previous tenant, and most of the time the cost can be offset by the security deposit. Vacancy directly impacts the scheduled income for the property. For most of my analysis, I use 10%, but I also do a macro analysis of the market to see what the vacancy rate is currently at. I also do not like the 1 months rent to fill a unit, that sounds like it can be very expensive.

V/R