In real estate investing, the vacancy rate is a critical metric used to determine the percentage of all available units in a rental property that are unoccupied at any given time. A high vacancy rate often indicates a poor location, overpriced rent, or subpar property management, while a low vacancy rate suggests strong demand.
The Physical Vacancy Rate Formula
The standard way to calculate vacancy is based on unit counts. This is known as the physical vacancy rate:
Vacancy Rate = (Number of Vacant Units / Total Number of Units) x 100
Example: If you own a multi-family building with 20 units and 2 of them are currently empty, your vacancy rate is (2 / 20) x 100 = 10%.
Understanding Financial Vacancy
While physical vacancy tracks empty rooms, financial vacancy tracks lost revenue. This is vital for professional investors because it accounts for "concessions" (like one month free rent) or non-paying tenants even if the unit is technically occupied.
Financial Vacancy = [(Potential Rent – Actual Rent) / Potential Rent] x 100
What is a "Good" Vacancy Rate?
Benchmarks vary significantly based on the asset class and market location:
Healthy Market: 3% to 5% is generally considered a sign of a balanced market.
High Demand: Anything below 3% indicates a very tight market where landlords have significant pricing power.
Warning Zone: Vacancy rates exceeding 8-10% may require an adjustment in management strategy or rental pricing.
function calculateVacancyRate() {
// Get unit-based values
var totalUnits = parseFloat(document.getElementById('totalUnits').value);
var vacantUnits = parseFloat(document.getElementById('vacantUnits').value);
// Get income-based values
var grossIncome = parseFloat(document.getElementById('grossIncome').value);
var actualIncome = parseFloat(document.getElementById('actualIncome').value);
var resultsDiv = document.getElementById('vacancyResults');
var physicalDisplay = document.getElementById('physicalRateResult');
var financialDisplay = document.getElementById('financialRateResult');
var financialRow = document.getElementById('financialResultRow');
var hasPhysicalData = !isNaN(totalUnits) && !isNaN(vacantUnits) && totalUnits > 0;
var hasFinancialData = !isNaN(grossIncome) && !isNaN(actualIncome) && grossIncome > 0;
if (!hasPhysicalData && !hasFinancialData) {
alert("Please enter the number of units or income details to calculate.");
return;
}
resultsDiv.style.display = 'block';
// Calculate Physical Vacancy
if (hasPhysicalData) {
if (vacantUnits > totalUnits) {
physicalDisplay.innerHTML = "Error";
physicalDisplay.style.color = "#e53e3e";
} else {
var physicalRate = (vacantUnits / totalUnits) * 100;
physicalDisplay.innerHTML = physicalRate.toFixed(2) + "%";
physicalDisplay.style.color = "#276749";
}
} else {
physicalDisplay.innerHTML = "N/A";
}
// Calculate Financial Vacancy
if (hasFinancialData) {
financialRow.style.display = 'flex';
var financialRate = ((grossIncome – actualIncome) / grossIncome) * 100;
// Handle case where actual income might be higher than potential (rare)
if (financialRate < 0) {
financialDisplay.innerHTML = "0.00%";
} else {
financialDisplay.innerHTML = financialRate.toFixed(2) + "%";
}
} else {
financialRow.style.display = 'none';
}
// Scroll to result
resultsDiv.scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}