How Knowing The Vacancy Rate Helps You Make More Money?

November 4th, 2020
How Knowing The Vacancy Rate Helps You Make More Money?

All landlords and agents want to reap the rewards of full buildings and fair rent values. There are many steps you can take to increase the value of your property from high-end materials like granite countertops to onsite amenities like fitness centers. You can develop policies from pet rent to private parties to help entice renters, but there's a factor you may have overlooked -- your vacancy rate. This factor helps landlords and agents adjust pricing and policies to match your area rental market. Determining your vacancy rate and comparing to similar properties is a great way to help you make strategic decisions to maximize your rental investment.

Determining Vacancy Rate

There's no need to be a math major to determine your vacancy rate. It's simple to begin, just take the number of vacant units in your building and multiple by 100, then divide this number by the number of total units and convert to a percent.

For example, your building has 6 empty units and 80 units in total. 6 times 100 is 600. 600 divided by 80 is 7.5, so your vacancy rate is 7.5%. If you need to figure out occupancy rates, perform this calculation substituting occupied units for the vacant number, in this case, 74 units would indicate 92.5% occupancy. Add your vacancy and occupancy rates together. If the math equals 100%, you've performed the calculation correctly.

Determining Neighborhood Vacancy Rates

Digital competitors don't tend to share web traffic and conversion rates with each other, and in a similar fashion, it's quite common for other rental agencies and landlords to also be close-mouthed about their vacancy and occupancy rates too. Fortunately, there are ways you can find out.

If there are multiple properties under one larger landlord or organization, you might be able to reach out directly to find rental data. You can also try setting up a Google alert or browsing the rental ads to see if properties have multiple ads or listings. Census data (if recent) can provide highly accurate information on occupancy as well as checking with your local government or real estate associations.

Determining What a "Good" Vacancy Rate is for your Area

Clearly, a fully rented property is best. A high vacancy rate can indicate that the area or the property isn't appealing to renters. A lower vacancy rate may indicate high demand for either your area or building.

If your property has a high vacancy rate, but comparable area properties have a low vacancy rate -- this can indicate a problem.

Start comparing your property to other comparable properties in more detail to perform a competitive analysis. How much do your competitors charge for rent or fees compared to your properties? Are your costs too high? What about amenities? Are you charging the same price as a neighbor who has a party room and rooftop deck while you only boast a lobby? And don't forget to analyze maintenance and property conditions.

If you have tenant complaints about slow maintenance, this can quickly tank your rental rates. It will also matter how your building is aging when compared to other area properties, so be sure to keep things in top condition.

Don't forget the micro-geographic details too. Sometimes being half a block apart can have a huge impact, such as being in a different school zone or on top of a loud nightclub. Small things can have a large impact on vacancy rates.

Determining Vacancy Rates for Single-Family Houses

There's one more area where we can learn from vacancy rates, and that is for single-family houses or condos. This calculation is a little different. In this case Vacancy Rate = Number of Days Vacant / Number of Rentable Days. A single-family home for example, with 21 days vacant would have a vacancy rate of 5.8%. The same market analysis can be performed on a single home as of the larger buildings mentioned above.

This information can also be used to help build portfolio information for investors. Know your vacancy rate, and know how you stack up with the competition. You'll want to adjust your strategy to stay competitive and succeed in maximizing your rental investment's income potential.