Thornton, CO · Member since 2015 · 22 posts · 3 votes
In the rental calculator here, you factor in vacancy as an additional cost in owning a rental. I have been just automatically putting in percentages just to do the calculations without a second thought but I just realized isn't putting a percentage in vacancy in the calculator double counting your expenses for holding the property?
I mean the calculator already factors in your HOA, insurance, utilities, and mortgage,etc. Why is there an additional cost by this term vacancy? Vacancy is already factored in when we calculate the fees I just mentioned. Unless there is something I'm missing here or you actually pay someone because your rental is vacant, I just don't understand why we also have to put in numbers for vacancy when they are already accounted for.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
10y
I had a hard time following this post amid all of the whining and sniping. It amazes me that better answers were not presented sooner. This article is a decent place to start:
A proper presentation of a pro forma should have a gross potential income followed by the items that make up your economic vacancy:
-Doors not physically occupied for periods of time
-Concessions
-Skips, etc.
If you operate D-class properties your economic vacancy is likely to be MUCH higher than operating nicer properties. Concessions will be higher and people not paying will be much higher. Thus this discussion is even more important for "high yield" (risky) properties.
Calculators that don't show formulas are all pretty worthless to me. They make a number of assumptions, many of which may not apply for your situation. You can find a spreadsheet Phil derived from one of mine here:
The schedule above is a screenshot from the pro forma template. Baked into the "Less Vacancy" number are assumptions about all of the items in the article linked above.
Financial services executive · Frederick, MD · Member since 2015 · 609 posts · 341 votes
10y
Tim
Please remember that everyone here is a volunteer contributor. If you want a perfect, professional answer tailored to your communication style, pay a CPA. They won't even talk back if you go off on them about the answer. The advice here is free and you got exactly what you paid for.
Vacancy expense is used as a tool for evaluating buy and hold purchases. Post purchase you track vacancy percentage but dont record an actual expense as there is no income from the vacant unit. Some highly leveraged landlords carry vacancy to their operations and segregate funds each month until a vacancy occurs. When evaluating a property for purchase you incorporate the vacancy as an expense against the annual projected gross rent roll to offset erroneous income calculated by multiplying the monthly rents by 12.
Hope this better answers your question. Still free. :)
I'm disappointed by the answers you both have given. Please READ my question carefully! If you've been paying attention to my question I've asked despite ALREADY factoring holding costs if I HAD to pay the entire expenses of owning the property that would already be accounted for in the HOA, mortgage,insurance, fees,etc.
My question is why are we double counting for something if we've already factored in those costs already in the calculation?
Unless you had to literally pay some imaginary person money just because your rental was vacant I see no reason why we need to factor in it twice when it's already in the calculations in the form of all the fees I've mentioned in my example.
Do I really have to spell it out that clearly? It's like saying you have holding costs you have to account for which are hoa fees, mortgage, utilities, insurance, etc. Then you're telling me now we have something called vacancy which is those same things we mentioned. You've basically threw another term that explained what I just accounted for, great! Now can we answer the real question?
You sound quite angry, mate. Maybe you need to go out and meditate or have some sex. I can provide tips if necessary ;) It absolutely is an expense. Look at it this way. If you have a year with 0% vacancy, your annual income is say $12,000 ($1000/month rent). If you have a month of vacancy (8.3%) you have just LOST REVENUE ($12,000-$1000=$11,000). That's no different than a $1000/yr. tax payment.
San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
10y
I can't think of one good reason I would be willing to help this abusive poster. If you don't understand the business and want help and advice, I highly suggest you be just a tad more respectful of the experienced professionals from whom you want to give you free advice.
Ha. It sure won't be me. If I'm going to be abused as a consultant, I'm going to get paid for it.