VACANCY RATE question

[Aldrin Meneses Quijada]

Good day! I would like to ask how much percentage should we save for vacancy rate incase if there is vacant on a single family unit. thank you and have a good day to all!

[Paul De Luca]

@Aldrin Meneses Quijada

I almost always underwrite 5% of gross income for vacancy. Sometimes I see people underwrite 3-7% but 5% is pretty typical in my experience.

[Tyler Fontaine]

Quote from @Aldrin Meneses Quijada:

Good day! I would like to ask how much percentage should we save for vacancy rate incase if there is vacant on a single family unit. thank you and have a good day to all!

I would run numbers on allocating for a minimum of ones months on an asset like that. As long as you can cover it and get the cashflow you need accounting for 7% CapEx, 7-10% Property Management, and then 5-8% for repairs you will be in good shape.

[Drew Sygit]

@Aldrin Meneses Quijada historically, landlords used 10%.

The high rental demand of the last few years has pushed that down to 5%.

Something no one asks: what do you put aside for nonperforming tenants?

Landords with Class A properties usually don't have to worry about this. Those with Class B & C tenants learned a hard lesson from the Eviction Moratorium - that is still ongoing.

[Simon Ashbaugh]

I typically go with 5%. seems to be pretty accurate.

[Michael Dumler]

@Aldrin Meneses Quijada, what are lease comps indicating? The MLS, Zillow, Redfin, etc. will all have filters to display how long comps were listed before being rented. If you're in a high-demand area with A-grade tenants, you can adjust respectively, vice versa, be a little more conservative if lease comps are showing 30+ day vacancies. Your variable expenses such as maintenance, CapEx, and vacancy are all dependent on the deal itself and the property subclass. Hope this makes sense and helps!

[Lindsay Davis]

Hi @Aldrin Meneses Quijada,

This is a great question—I’m glad you’re thinking deeply about how to properly underwrite vacancy rates!

I run a real estate company that operates in Huntsville, and based on our data, we underwrite a 4–5% vacancy rate in this market. If we reference housing statistics from the U.S. Census, we find similar numbers. The vacancy rate is about 5.2% with a margin of error plus/minus 2.2%, which corroborates this claim.

In general, it’s good practice to rely on location-specific housing and demographic data when underwriting vacancy rates and other variables. Try to pull vacancy data for your metro area or even zip code if possible—the more specific and granular, the better. Hope this helps!