What vacancy rate should you use for a rental property?
Vacancy should be supported, not guessed.
A vacancy assumption is not a national rule of thumb you copy into every deal. It is a planning estimate for rent you may not collect because the property is empty, turning over, or otherwise not producing the scheduled rent you modeled.
- Market evidence
- Property evidence
- Turnover reality
- Stress testing
Build the assumption from evidence, then test a worse case.
Before choosing a vacancy rate, ask the questions that connect the market number to the property.
- What does current local rental-market data suggest?
- How long do comparable rentals actually take to lease?
- What has this property’s recent occupancy and turnover looked like?
- Is the lease structure stable or unusually short?
- Is the property seasonal, student-oriented, or otherwise different from the broader market?
- Are concessions or collection losses being confused with physical vacancy?
- What happens to the deal if vacancy is worse than your base case?
Use a base-case assumption that reflects the property and market, then see whether the deal still works when reality is less favorable.
Three related ideas affect rental income differently.
For a simple single-property screen, the vacancy input usually functions as a planning allowance against scheduled rent.
Market rental vacancy rate
A market statistic describing the share of rental inventory that is vacant and available for rent.
Useful for
- Understanding broader supply and demand
- Comparing markets
- Seeing whether rental conditions appear tight or loose
A metro, county, city, or tract-level vacancy rate does not automatically tell you how long one specific property will sit empty.
Property physical vacancy
Time when the property or unit is unoccupied and not producing rent.
Useful for
- Understanding actual turnover
- Reviewing operating history
- Estimating downtime between tenants
A fully occupied property today can still experience future turnover.
Economic vacancy or income loss
A broader concept that can include physical vacancy plus other lost rental income, such as concessions or bad debt, depending on the analysis.
Useful for
- Understanding why collected rent can be lower than scheduled rent
- Avoiding the assumption that occupancy always equals full income
Do not mix physical vacancy, concessions, and collection losses without knowing what your model already includes.
Keep the model clear
A planning allowance is useful as long as you understand what it does, and does not, capture.Why a universal 5% rule can mislead
A shortcut can be a placeholder. It should not become invisible truth.
The same percentage can describe a long-term tenant followed by one turnover, predictable student leasing, a seasonal market, concessions, or an overpriced property that sits.
In a simple annual model, 5% is roughly equivalent to about 18 days of lost scheduled rent over a year.
That does not mean the property will literally be vacant for 18 days, and it is not a Prosperity recommendation to use 5%.
Start close to the property, then work outward.
Open each evidence level for what to look for and the limitation to keep in view.
01Property-specific operating history
What to look for
Look first for evidence from the property itself.
- Current and prior leases
- Move-in and move-out dates
- Vacancy between tenants
- Rent roll, if applicable
- Renewal history
- Reasons for turnover
- Concessions or collection issues
02Comparable rental activity
What to look for
Check what directly comparable rentals are doing now.
- How many similar rentals are currently available?
- How long have they been listed?
- Are rents being reduced?
- Are landlords offering concessions?
- Do similar properties appear to lease quickly?
03Local property managers or leasing professionals
What to look for
Ask someone who handles similar rentals in the local market.
- How long does this property type usually take to lease?
- How much downtime is normal between tenants?
- Is turnover seasonal?
- Are renewals strong?
- Are concessions common?
- Is this property type easier or harder to lease than the broader market?
04Census vacancy data
What to look for
Use published market data to understand the broader setting.
- Housing Vacancies and Homeownership data for the U.S., regions, states, and many large metropolitan areas
- American Community Survey estimates for smaller geographies
- Margins of error, geography, date, and definition behind the estimate
05Other credible local market reports
What to look for
Use specialized local evidence where it is available.
- Local brokerage rental reports
- Apartment-market research
- Property-management reports
- Local housing agencies
- University or employer housing reports in specialized markets
The market number is a clue. Property evidence tells you whether it fits.
A 4% local rental vacancy rate does not mean every property should automatically use 4%.
- unusual layout or weak parking
- dated condition
- aggressive asking rent
- short lease terms
- seasonal demand
- limited tenant pool
- a history of long turnovers
- documented stable occupancy
- strong renewal history
- competitive rent
- broad tenant appeal
- local manager support
- recent comparable rentals leasing quickly
An occupied property can still collect less than scheduled rent.
One month free, move-in concessions, unpaid rent, and temporary rent reductions affect income without always creating physical vacancy.
Keep the losses distinct
Professional multifamily underwriting often separates physical vacancy, concessions, and bad debt because each reduces income differently.
For a simple single-property analysis, you do not need institutional underwriting. You do need to avoid double counting.
Fannie Mae Multifamily Guide: Underwritten Net Cash FlowMove from local context to a supported number.
Then increase vacancy and see what changes.
- Step 1
Start with local context
Find a recent local vacancy measure or credible leasing-market report.
- Step 2
Check the subject property
Review occupancy, turnover, lease dates, and prior downtime if available.
- Step 3
Check direct competition
Look at comparable current rentals and how quickly they appear to be leasing.
- Step 4
Ask a local operator
If possible, compare your assumption with a property manager or leasing professional who handles similar rentals.
- Step 5
Choose a supportable base case
Use a number that reflects the combined evidence, not simply the most optimistic source.
- Step 6
Stress-test a worse case
Increase vacancy and see what the property’s planning cash flow looks like under the less favorable assumption.
The same citywide statistic can support different property-level assumptions.
Property history and current competition change how much weight the market statistic deserves.
Property A
- long-term tenant history
- competitive rent
- ordinary layout
- similar rentals lease quickly
- strong manager feedback
Property B
- premium asking rent
- unusual layout
- prior long turnover
- several competing listings
- seasonal leasing pattern
Use the best available evidence in a deliberate order.
For a vacant, newly purchased, or first-time rental, a placeholder is acceptable when it is clearly labeled and replaced as research improves.
- 01Direct comparable rental activity
- 02Local manager or leasing input
- 03Property-specific characteristics
- 04Current local vacancy data
- 05Broader market statistics
- 06Generic rule-of-thumb assumptions
Seasonal and specialized rentals need extra care
One annual percentage can hide timing risk.
College markets, resort areas, strongly seasonal locations, corporate housing, and other specialized demand patterns may have several weak months even when the annual average looks acceptable.
Monthly or seasonal analysis may be more useful than one annual percentage when timing drives the risk.
The Prosperity Rental Deal Quick Check is intentionally a first-pass annual screen. More detailed timing or seasonality may require a deeper model.
Know where the number came from.
The point is not to eliminate uncertainty. It is to make the support behind the assumption visible.
- Strongest evidence
Property history
Property-specific leases, turnover history, and actual occupancy.
- Then
Direct competition
Directly comparable current leasing activity.
- Then
Local operators
Local property-manager or leasing evidence.
- Then
Local data
Recent local market vacancy data.
- Then
Broad data
Broader regional or national statistics.
- Weakest evidence
Generic percentage
A number copied from a blog, calculator, or old spreadsheet with no local support.
Red flags in a vacancy assumption
Be cautious when the number has weak support or the deal needs perfection.
A stronger screen keeps uncertainty visible instead of hiding it inside one percentage.
- the analysis uses 0% vacancy without a strong reason
- the percentage comes from a generic rule of thumb with no local check
- the property has no history and no comparable leasing research
- comparable rentals are sitting while the model assumes almost no downtime
- the asking rent is aggressive relative to the market
- seasonal turnover is hidden inside one annual average
- concessions are treated as if they do not reduce income
- physical vacancy and other income losses are double counted
- the deal only works with the most optimistic vacancy assumption
Run your supported vacancy assumption through Prosperity Rental Deal Quick Check.
Use it together with your researched rent, financing, management, maintenance, CapEx, taxes, insurance, HOA, utilities, and other assumptions.
Run the Rental Deal Quick CheckQuick Check does not know your local vacancy rate. Its vacancy input is a simplified annual planning allowance that helps you see what your chosen assumption does to the deal.