November 05, 2019
What you Need to Know About Vacancy Rates
Real estate investors and property managers need to keep a sharp eye on their vacancy rates. Tenant turnover can kill profitability. A low vacancy rate can go a long way in improving the marketability and price of a property. And, a vacancy rate is a critical determinant for property owners because it tells them how their buildings are performing when compared to the area’s vacancy rate.
The vacancy rate formula is pretty straightforward. You simply multiply the total number of unoccupied units by 100 and then divide by the total number of units.
Let’s say you have an apartment building that has 40 units. Of those 40, two of them are currently vacant.
Step one: Multiply your vacant units by 100.
2 X 100 = 200
Step two: Divide the total by the number of units in your building to get your vacancy rate.
200 / 40 = 5% vacancy rate
With this information you can compare your product to regional or local levels. However, to be effective, vacancy rates for one property should only be compared to a similar one. You cannot do apples-to-oranges comparisons like equating a commercial office building to a multi-unit apartment complex.
According to the US Census’ latest third- quarter 2019 review of rental vacancy rates, the highest vacancy rates were found in the South at 8.7 percent), followed by the Midwest at 7.0 percent. The rental vacancy rates in Northeast (5.4 percent) and the West (4.8 percent) were not statistically different from each other. These rental vacancy rates for the Midwest, Northeast, South, and West were not statistically different from their third quarter 2018 rates.
And, as much as they vary on a regional level, vacancy rates vary depending on the rental market in the city where you are. However, as a rule of thumb five to eight percent vacancy is an average.
In a fascinating article at AllPropertyManagement.com, they show how professional property managers cut vacancy rates in half through a combination of local knowledge, better screening, faster action for delinquent tenants and longer leases.
Factors Within Your Control
There are factors that you cannot control like market conditions. However, property managers can control things like curb appeal and maintaining a clean and tidy property. Leasing terms need to be fair and competitive to other comparable properties.
Marketing materials need ongoing reviews to ensure the property is being shown to its best advantage, and property managers or the marketing team need to keep watch over property review websites. Review call tracking to see which ads and ad channels are performing the best.
Your staff can also play a role. Trouble can brew if your leasing people are not experienced or skilled in getting leads to come to see the property or in giving the in-person tour. Your leasing agents also need to know how to gently close the deal with prospects.
Typical reasons for higher vacancies include:
- You’re charging too much rent for the property/area.
- You aren’t keeping up with repairs and maintenance.
- Your property isn’t competitive/has fewer amenities.
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