A recent report by IBIS World shows that about 6.7% of rental properties in the U.S. are sitting empty. Dissatisfaction among tenants is a key contributor to this vacancy rate.
Seeing your rental unit sitting empty can be stressful. It quietly drains your profits and makes your investment unstable.
As a property owner, you should aim to thrive in the real estate market – not just survive. That’s why it’s always important to ask yourself, “what is vacancy rate in my unit?”
In this blog, we’ll help you understand more about rental property vacancy rates and how to boost your investment potential. Keep reading to learn more.
What Is Vacancy Rate?
The vacancy rate is the percentage of empty rental units out of the total number of units available. It shows how many unoccupied units that aren’t generating rental income.
Understanding the rental property vacancy rate will help you measure your investment performance. A high vacancy rate is a sign of a poorly performing rental market, and vice versa.
Understanding the vacancy rate also helps you make sound investment decisions. You can decide to sell your property or market it to attract new tenants.
Understanding the rental vacancy rate also:
- Promotes compliance with financial reporting and planning
- Influences property improvements
- Guides pricing strategy
- Enhances cash flow forecasting
- Impacts property valuation
Calculating Vacancy Rate
Knowing how to calculate vacancy rates makes it easier to measure your property’s financial health. You can analyze how much income you’re losing and its impact on your overall cash flow.
Calculating the vacancy rate also helps track the local market. You’ll know how the Memphis rental market is performing and make the right adjustments to attract more tenants.
Financial planning becomes easier. You’ll be able to create a more accurate budget and set aside adequate reserve funds.
Planning for future property upgrades and growth also becomes easier. You can set goals, compare them, and measure your property’s performance over time.
Steps for Calculating Vacancy Rate
If you’re a first-time landlord or property owner, Reedy & Company in Memphis, TN, can accurately calculate your rental investment’s vacancy rate. We understand the expert investment property tips that can lower your property’s vacancy rate and maximize profitability.
The first method we can use is a time-based vacancy rate formula: (Number of Days Vacant ÷ Total Number of Days Available for Rent) × 100. For example, if a rental home was empty for 2 months out of the year, it sat vacant for 60 out of 365 days. This gives it a vacancy rate of about 16.4% (60 Days ÷ 365 Days) × 100.
The other formula (unit-based vacancy rate) is also a simple equation: (Number of Empty Units ÷ Total Available Units) × 100. For example, if four rental units out of thirty total units are empty, the calculation would be (4÷30) × 100. The vacancy rate, in this case, is 13.3%.
Accurate calculations allow for easier vacancy rate analysis. The quantifiable measure you get is crucial for rental investment management decisions.
To get correct vacancy results, ensure you calculate regularly. Calculate monthly, quarterly, and yearly for easier tracking of your investment’s performance.
You can use property management software for easier calculation. At Reedy & Company, we use modern software to calculate and track the vacancy rates of our clients’ rental units.
Factors Influencing Rental Property Vacancy Rates
The location of your rental investment can influence its vacancy rate. A rental unit near desirable amenities like shopping centers, schools, and public transit attracts more tenants. This is unlike rental properties in unsafe, remote locations with poor infrastructure.
Lease terms can make tenants vacate or stay in your rental property. Flexible lease terms like renewal incentives and timely repairs encourage lease renewals, reducing vacancy rates.
Other factors that influence rental vacancy rates include:
- Property condition, amenities, and management
- Rental pricing strategy
- Marketing and advertising
- Local rental market competition
- Economic conditions like unemployment
Signs of High Rental Vacancy Rate
Knowing the warning signs of high vacancy rates will help you hire professionals like Reedy & Company promptly. You won’t have to wait until your cash flow reduces and your investment becomes financially unstable.
The first obvious sign is that your rental units have been sitting empty for too long. A property management company can help optimize your listing and attract more tenants.
Frequent tenant turnover signifies high vacancy rates. It’s a sign you need to do better, in terms of lease terms, to increase tenant retention.
Not doing well on various rental listing platforms may be a sign of high vacancy rates. It shows that no new tenants are searching for your rental unit.
Long-Term Effects of Rental Vacancy Rates
Financial instability is a major vacancy rate impact you can experience. It comes as a result of a loss of revenue. No tenant, no rent, no cash flow!
Empty rental units contribute to high operating costs. You’ll incur more on advertising and marketing your investment.
Other issues caused by high vacancy rates include:
- Property devaluation
- Reputation damage
- Strained relationships with mortgage lenders
Strategies for Reducing Rental Property Vacancy Rates
Improving your property’s condition is key to attracting long-term tenants. Inspections and maintenance enhance tenant safety and comfort, encouraging lease renewals.
At Reedy & Company, we prioritize regular inspections and maintenance to keep your rental investment in top condition. We have a rental property inspection checklist to ensure comprehensive protection of your property.
We inspect and maintain:
- Electrical system
- Plumbing system
- Structural integrity – flooring, walls, ceiling, and roof
- HVAC Systems
- Landscaping
Effective tenant communication builds good tenant-landlord relationships. It makes tenants trust you more, leading to lease renewals.
Other strategies include:
- Thorough property marketing and advertising
- Comprehensive tenant screening
- Providing incentives
- Setting competitive rent
What Is Vacancy Rate? Boosting Your Investment’s Potential
Wondering what is vacancy rate? It’s the percentage of available rental units that are unoccupied. If you have multiple rental units in Memphis, TN, or across the U.S., you need professional help to mitigate high vacancy rates.
Reedy & Company is Memphis’s trusted partner that’s been managing rental properties since 2002. We’ve managed more than 3,500 properties for investors from the local area, across the country and overseas.
Call us today and let’s help increase your investment’s occupancy rates.
