Vacancy Rate Impact on Annual Returns
Vacancy rate impact on a $1,600/month rental property
| Vacancy Rate | Annual Gross Income Lost ($1,600/mo rent) | Effect on Cash-on-Cash Return | What It Represents |
|---|---|---|---|
| 0% | $0 | Base case | Unrealistic — no downtime between tenants |
| 5% | $960 | −2% | ~18 days vacant per year |
| 8% | $1,536 | −3.2% | ~1 month vacant per year (realistic benchmark) |
| 12% | $2,304 | −4.8% | ~6 weeks vacant per year |
| 15% | $2,880 | −6% | High turnover or challenging market |
| 25% | $4,800 | −10% | Chronically difficult market or property |
💡The Turnover Cost Beyond Vacancy
Each tenant turnover costs beyond the vacant days: cleaning ($150–$400), paint ($500–$1,500), carpet cleaning or replacement ($300–$2,000), minor repairs ($200–$800), listing and showing time. Total turnover cost: $1,150–$4,700 per tenant change. A 5-year tenant at $1,600/month saves 4 turnovers = $4,600–$18,800 in avoided turnover costs.
Markets and Property Types by Vacancy Rate
Typical vacancy rates by property and market type
| Property/Market Type | Typical Vacancy Rate | Strategy |
|---|---|---|
| SFR in growing suburb, good school district | 3–5% | Long tenancy, family stability |
| SFR in student housing area | 10–15% | Annual turnover; summer vacancy common |
| Apartment in supply-constrained urban core | 3–6% | Strong demand; limited competition |
| STR (Airbnb) vacation market | 20–40% | Seasonal; high per-night but low occupancy |
| Class C property in transitional market | 10–20% | Higher yield, higher management intensity |
Minimizing Vacancy: Proven Strategies
- Price at or 2–3% below market: The fastest-leasing units are priced competitively. $50/month below market fills faster and reduces vacancy cost.
- Start marketing 60 days before lease end: Begin showing to prospective tenants while current tenant is still in place. Overlap marketing and occupancy.
- Offer lease renewal incentives: $100–$200 discount for 2-year renewal or 1 month free at renewal. Turnover cost ($3,000+) far exceeds the incentive cost.
- Maintain the property proactively: Tenants renew when the landlord is responsive and the property is well-maintained. Neglect drives turnover.
Calculate Returns at Different Vacancy Assumptions
Run the calculator at 5%, 8%, and 12% vacancy to stress-test any deal.