Occupancy Rate and Vacancy Rate Explained

Real Estate Agent

As a real estate investor, you already know that a vacant apartment does not make money.  Vacancy rate, the percentage of all apartments in your portfolio that are vacant at any time, is generally figured on a year or more of data, based on the number of units that are occupied and vacant monthly. Occupancy rate is the number of occupied units, and is often used because it is seen as more “positive” than vacancy rate.

An example would be having 20 units total, with 15 occupied in January, leaving 5 units vacant in January.  When figuring vacant units, you should include units that are vacant and ready for showing / move in, units that are being turned over after a tenant leaves, and units that are not rent-able due to needing repair or renovation.  This will give you the most accurate figures available.

Assuming you are looking at a 20 unit portfolio, that would mean that every month you have 20 units that are potentially available for rental.  Over 12 months, you would have 240 unit-months.  The formula for this is Number of Units * Number of Months = Number of Unit-Months.

Taking a full year of data, you can figure the total number of units vacant by simply adding up all the units that were vacant each month over the year of data.  Using our sample data, our Number of Vacant Units would be 35, over the course of the year.

Once you have your Number of Unit-Months and your Number of Vacant Units, calculating vacancy rate is simple.  The formula is Number of Vacant Units / Number of Unit-Months = Vacancy Rate.  Using our sample data,  35 / 240 = .1458 or a 14.58% vacancy rate.

Calculating the Occupancy Rate is simple once you have the vacancy rate.  The formula is 100% - Vacancy Rate Pertentage = Occupancy Rate.  Using our sample data, our occupancy rate would be figured as 100% - 14.58% = 85.42%.

Having a good idea of your vacancy and occupancy rates will give you an indication of how strong your portfolio is performing.  It may also help you determine what you need to do to make your portfolio more profitable.  For instance, if you consistently have one building that has vacancies, you may consider selling it and reinvesting in a stronger rental market.

Andrew Schultz is a real estate agent and property manager located in the Western New York area.  His articles on real estate investing and property management can be found at www.andrew-schultz.com.

Comments (2)

Brent Johnson
Chase International South Tahoe Realty - South Lake Tahoe, CA

As an investor, I cringe at a vacancy rate over 5%. I have a small 7 unit building with 7 long term great tenants. Got to love that!

Great explination of vacancy rates.

Mar 13, 2009 02:34 AM
Andrew Schultz
Amherst, NY

Brent, it doesn't get much better than that!!

Mar 13, 2009 02:38 AM