Like with any investment, real estate has inherent risks—and rental vacancies are one of the biggest and baddest.
Thanks to rental vacancy rates, your rental property may actually be losing money instead of making it. Every week your property sits unoccupied, it costs you hundreds or thousands of dollars in irretrievable revenue. Fortunately, you don't have to be a passive bystander to this catastrophe—there are things you can do to lower your risk of vacancy and turn your property into a money-maker.
First, let's help you gain a better understanding of vacancy risks and vacancy rates. Then, we'll show you what you can do about it.
What Is Rental Vacancy Rate?
For a single property, the annual rental vacancy rate is the percentage of days (or weeks or months) that the unit is not earning rent per year. In our experience, even experienced landlords underestimate the true cost here because they don’t track it and calculate it.
You can calculate your rental property's vacancy rate by taking the total time your property was vacant (over a certain period of time—usually a year) and dividing that number by the total time it could’ve been rented.
How to Calculate Your Rental Vacancy Rate
Here's what the vacancy rate formula looks like:
Vacancy Rate = Total Time Vacant / Total Time Available to be Rented x 100
Let's look at an example to put this formula into action:
Let's say you own a single-family property that sat vacant for 4 weeks in July in 2020—besides that, you had it rented out every week. Okay, let's plug those numbers into the formula.
4 Weeks Vacant / 52 Available Weeks x 100 = 7.69% Vacancy Rate
You could also calculate the vacancy rate using days or months, if you’d like.
Now, that 7.69% vacancy rate number doesn't help you very much without context. Is that a good vacancy rate or a bad one? Excellent question.
To find out, you'll want to look at national, regional, and local vacancy rate averages:
- National Vacancy Rate in 2020: 6.4% for rental housing
- Rental Vacancy Rate by State: Data available here on Census.gov
- Rental Vacancy Rate by City: Data available here on Census.gov
These rates vary over time, so just because you had a 7% vacancy rate last year doesn't mean that you'll be able to sustain that number forever (or improve upon it). Worldwide crises (like the COVID-19 pandemic), recessions, and local economic factors can all impact your vacancy rate, regardless if you're doing everything right.
How Rental Vacancy Rates Cause You to Lose Money
We've been throwing around formulas and rates and saying "bad" and "good" a lot, but what does this all mean? How do rental vacancy rates impact your bottom line?
Let's break it down further.
When a rental sits vacant, you lose money. You're likely still paying the mortgage on that property, and if a tenant isn't paying you rent, then you have to pay that mortgage, insurance, and taxes, with money out of your own pocket.
This happens from time to time due to the natural tenant-turnover cycle or if an emergency repair needs to be made. However, when it happens too often, for too long, and across several units, you're going to start losing money.Every month a property sits vacant, you lose out on money that you'll never get back. That month is gone forever, and so is its potential rental income.
Your property's rental vacancy rate indicates how long a property has sat vacant. A low vacancy rate is a healthy indicator that your property is in demand, and you likely have no problem keeping it leased and paying you monthly. High vacancy rates mean you're struggling to keep your property occupied, and that indicates you're losing out on revenue and could be incurring losses.
Try our free Rental Income Calculator and see for yourself:
- Plug-in your expected monthly rent, average time to rent, and tenant renewal rate
- Discover your potential earnings and costs
- Adjust the sliders for rent, time to rent, and renewal rate to see how these factors impact your vacancy costs and ultimately your income
What You Can Do About Rental Vacancy Rates
You have a lot of influence (although not complete) over your rental property's vacancy rates. If it's low, you're doing something right—don't break anything! If it's high, then there are things you can do to bring it down.
1. Stay on Top of Maintenance
The best way to reduce your vacancy rate is to keep current tenants longer. Tenants want to stay in a nice, comfortable property—go figure! They have a lot of control over that environment when it comes to the fundamentals: like doing the dishes, vacuuming, mowing the lawn, and basic cleaning.
However, it's up to you to take care of bigger ongoing maintenance and repairs. Your tenants aren't usually going to take care of things like broken appliances or leaks—they'll call you for that. You need to maintain an open line of communication with your tenants—if they call and tell you the water heater is broken, you can't wait until the weekend to get around to fixing it.
If your property manager is responsible for maintenance and repairs, make sure they're staying on top of things. It's easier (and cheaper) to repair than replace, so staying on top of your maintenance responsibilities is a win-win for you, your tenants, and your vacancy rates.
Happy tenants make for long-term tenants, and long-term tenants make for lower vacancy rates.
2. Screen Tenants Properly
Do your due diligence when screening tenants. Finding the right tenants will reduce turnover and the potential for payment delinquency (another expensive cost of owning a rental property).
High-quality tenants will reduce your tenant-turnover rate, and a lower turnover rate will lower your vacancy rate.
Here are a few ways to find, screen, and accept the right tenants:
- Add the Right Term Length to Your Lease Agreement: Whether you sign your tenants on a 6-month or 1-year lease, outlining the tenancy terms will protect you from unplanned vacancies. A month-to-month contract can end at any time, and although tenants will usually need to provide adequate notice (as outlined in your lease agreement), it might not be sufficient to find new tenants in time.
- Do Your Research: Ask questions around income, employment, credit, criminal backgrounds, previous evictions, residence history, and more. Contact references and prior landlords. Make sure you comply with Fair Housing rules but do everything in your legal power to find honest, reliable tenants who'll love your property and be respectful of the lease agreement.
- Interview the Candidates: Once you've collected the application and done your background research, you should conduct an in-person (or virtual, thanks to COVID-19) interview with potential candidates. Review your findings, answer questions, and get to know your candidates. However, make sure you comply with all Fair Housing laws by avoiding inappropriate questions and illegal criteria.
Don't feel comfortable with the whole tenant finding, screening, and leasing process? You're not alone—that's why we developed our Lease-Only Core Nomad product. We'll professionally lease your property to the best-of-the-best tenants within 45 days, or you can reduce our fees by half. Learn more here.
3. Improve Your Marketing
Sometimes, you just can't control tenant turnover: tenants come and tenants go, some break their contract early, and others unexpectedly don't renew their lease. It happens.
When it does, you'll need to market your property quickly and effectively to attract the best tenants and reduce your vacancy length—that's easier said than done. There's a lot that goes into marketing a property:
A picture is worth a thousand words, and now in the world of swipe, swipe, swipe, it's probably worth even more. You have just a few seconds to grab a potential tenant's attention and get them to look at the listing, description, price, and more.
Ideally, you'd hire a professional photographer to shoot pictures for your property. If money is tight, you might do a DIY shoot—if so, follow a few simple best practices:
- Less Is More: Be strategic about which photos you choose to show. You don't need 5 different angles of every room—the point of the picture is to satisfy your tenant's curiosity and get them interested in seeing the property in-person.
- Don't Forget the Exterior: Interior shots are important, but your first photo should always be an exterior shot. And for the love of this world, please don't choose a picture of your local park, trails, or mountain scenery as your featured image—only show your actual property.
- No Flash Photography, Please: Let natural light from windows or lighting fixtures do the lighting for you. Pick a time of day when light is abundant (but doesn't cause overexposure) to do your interior shoots. Take your exterior pictures either a half hour before or after sunset or early in the morning.
- Wide-Angle Lens—Not Smartphone Cameras: Your iPhone is great—it really is, but it doesn't capture the wide-angles you need to highlight smaller spaces. Rent or borrow a high-quality SLR camera and a tripod—it'll pay dividends in your marketing.
Showings are where you can sell really sell the property and seal the deal with potential tenants. Here are a few tips to make the most of your showings:
- Allow Access to Everything: Let them see the actual unit, not just a similar unit. Show them everything from the basement to the bathrooms to the closets to the rooftop—don't make anything off-limits.
- Avoid Steering: Yes, you know the highlights you want to show your tenant—and that's great, but allow them to see everything in between. Plus, intentionally not showing a tenant all the areas of your unit could lead to potential liability claims.
- Be Ready to Answer Any and All Questions: Do your research and make sure you're able to talk to all areas of your property. When was it built? How old are the windows? When's the last time the carpet was cleaned? What kind of countertop is that? What's the school district like in the area? How far is the closest grocery store? It might seem like overkill, but you don't want to keep saying, "I don't know," when your tenant has serious questions.
Did you know Nomad will take care of all your professional listing needs for you? We provide professional photography, showings, and listings across 20+ websites to ensure we rent your property quickly and for top dollar. Learn more about how we can help you here.
4. Adjust Your Rent Prices
If you're charging too much for rent, it'll be difficult to fill vacant units. Plus, it'll be a challenge to maintain your current tenants.
Regularly look at your local market to see what similar units are going for in your area. You'll need to have comparable pricing and terms to reduce your vacancy rates.
Need help finding the right price for your rental? Check out our 2020 Guide to Rental Rates to learn how you can dial in the perfect prices for your properties.
5. Lease With Nomad
We'll guarantee your rent for 2 years. That means you get paid on the 10th of every month, regardless of whether we rent your property or not—guaranteed.
Plus, we're your partner, not just a property management company out to make a quick buck. We have a vested interest in your rental's long-term value, which inspires us to only lease to the best-of-the-best residents.
All of this means that you don't have to worry about vacancy rates, delinquencies, screening tenants, collecting rent, or any of it. Lease with Nomad, and we'll take care of all the nitty-gritty work—you just sit back, relax, and tell us where to send your check every month.
Want to learn more about how this whole Nomad thing works? Check out the step-by-step process on our How It Works page.