How do you factor in vacancy rates for MTRs?

Question

I have started researching MTRs in my area, but I am not really sure how to swag the vacancy rates. Any insight on how to arrive at this number (either nationally, regionally or preferably locally) would be helpful.

Nicole Heasley Beitenman · Answer

We're factoring in a slightly elevated vacancy rate of 15% instead of the standard 10%. We have enough reserves to cover the mortgage for a year if we're wrong.

Evan Kline · Answer

@Taylor R Herschleb similar to most everyone else here - I underwrite high (20%) but our actually performance on our two MTR's has been sub 5% vacancy.

Conner Olsen · Answer

@Brett Deas Thanks for the advice!

Conner Olsen · Answer

Timing the stays is interesting. All my bookings are on Airbnb so I'm very limited there.

Brett Deas · Answer

I think this heavily relies on how great of an asset that you buy, and forward thinking. The timing of the stays play a huge factor because I have seen that demand is huge in the spring and summer and slows into the winter. So knowing that and choosing between a few different guests with different stays you can try and play the probabilities of the system. I also make sure my units are the nicest around in terms of pictures and amenities. My units naturally have lower vacancy because people love what I offer.

Conner Olsen · Answer

Any tips for limiting vacancy? I'm assuming you're getting 3% just between guests. How do you minimize the turnover?

Brett Deas · Answer

While I average 3%, I underwrite 20% because I am very conservative in my underwriting.

Taylor R Herschleb · Answer

Thank you Conner, Brandon and Nicole. I appreciate taking your time to respond.

Conner Olsen · Answer

I underwrite 10-15%. My best properties are averaging 5% or less vacancy.

Brandon Vanderford · Answer

I usually factor for approximately 10% vacancy. Think of it this way. That is five stays per year, with approximately one week of vacancy between tenants. This is average, in my experience. If you are ambitious, you can do better, though. My best year, I was down to approximately 2% vacancy on approximately two dozen MTRs. Do not count on that, though.

How do you factor in vacancy rates for MTRs?

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