Vacancy Rate Calculation

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Property Vacancy Rate Calculator

Calculate both Physical and Economic vacancy rates for your rental portfolio.

Physical Vacancy (Unit Count)

Economic Vacancy (Financial) – Optional

function calculateVacancy() {
// — Input Retrieval —
var totalUnits = document.getElementById(‘totalUnits’).value;
var vacantUnits = document.getElementById(‘vacantUnits’).value;
var potentialIncome = document.getElementById(‘grossPotentialIncome’).value;
var vacancyLoss = document.getElementById(‘vacancyLoss’).value;
// — Data Parsing & Validation —
var unitsTotal = parseFloat(totalUnits);
var unitsVacant = parseFloat(vacantUnits);
var incomeTotal = parseFloat(potentialIncome);
var incomeLost = parseFloat(vacancyLoss);
var hasPhysicalData = !isNaN(unitsTotal) && !isNaN(unitsVacant) && unitsTotal > 0;
var hasEconomicData = !isNaN(incomeTotal) && !isNaN(incomeLost) && incomeTotal > 0;
var resultsArea = document.getElementById(‘results-area’);
var physicalDisplay = document.getElementById(‘physicalResult’);
var occupancyDisplay = document.getElementById(‘occupancyResult’);
var economicDisplay = document.getElementById(‘economicResult’);
// Reset display
resultsArea.style.display = ‘none’;
if (!hasPhysicalData && !hasEconomicData) {
alert(“Please enter valid numbers for Total Units and Vacant Units to calculate.”);
return;
}
// — Physical Vacancy Calculation —
if (hasPhysicalData) {
if (unitsVacant > unitsTotal) {
alert(“Vacant units cannot exceed total units.”);
return;
}
var physicalRate = (unitsVacant / unitsTotal) * 100;
var occupancyRate = 100 – physicalRate;
physicalDisplay.innerHTML = physicalRate.toFixed(2) + “%”;
occupancyDisplay.innerHTML = occupancyRate.toFixed(2) + “%”;
} else {
physicalDisplay.innerHTML = “–“;
occupancyDisplay.innerHTML = “–“;
}
// — Economic Vacancy Calculation —
if (hasEconomicData) {
if (incomeLost > incomeTotal) {
alert(“Vacancy loss cannot exceed potential income.”);
return;
}
var economicRate = (incomeLost / incomeTotal) * 100;
economicDisplay.innerHTML = economicRate.toFixed(2) + “%”;
} else {
economicDisplay.innerHTML = “N/A (Enter Income Data)”;
}
// — Show Results —
resultsArea.style.display = ‘block’;
}

Understanding Vacancy Rate in Real Estate

The vacancy rate is one of the most critical Key Performance Indicators (KPIs) for real estate investors and property managers. It represents the percentage of all available units in a rental property (such as an apartment complex, hotel, or commercial building) that are unoccupied at a specific time.

A high vacancy rate generally indicates that a property is not performing well, possibly due to high rental prices, poor location, or lack of maintenance. Conversely, a very low vacancy rate might suggest that rental rates are too low relative to the market demand.

Physical vs. Economic Vacancy

It is important to distinguish between the two primary ways vacancy is calculated:

• Physical Vacancy: This is calculated based strictly on the number of units. If you own a 10-unit building and 1 is empty, your physical vacancy is 10%. This measures pure occupancy.
• Economic Vacancy: This is calculated based on the financial potential of the property. It takes into account the Gross Potential Income (GPI) and compares it to the actual income lost due to vacancy, “bad debt” (tenants who don’t pay), and concessions (free rent months). Economic vacancy is often considered a more accurate metric of an asset’s financial health.

How to Calculate Vacancy Rate

The formula for calculating the vacancy rate is straightforward. For physical vacancy, use the following formula:

(Number of Vacant Units / Total Number of Units) × 100 = Vacancy Rate %

Example:
Imagine you own an apartment complex with 50 units.
Currently, 3 units are unoccupied.

Calculation: (3 ÷ 50) = 0.06 × 100 = 6% Vacancy Rate.

Calculating Economic Vacancy

To calculate economic vacancy, you need to look at the dollar amounts rather than just the door count:

(Lost Income / Gross Potential Income) × 100 = Economic Vacancy Rate %

Example:
Your property could generate $100,000 per month if fully occupied (Gross Potential Income).
Due to empty units and one tenant failing to pay rent, you lost $8,000 this month.

Calculation: ($8,000 ÷ $100,000) = 0.08 × 100 = 8% Economic Vacancy Rate.

What is a Good Vacancy Rate?

While “good” varies by market and property type, generally:

• 2% – 4%: Often seen in high-demand urban areas. Extremely low rates may indicate you should raise rents.
• 5% – 8%: Considered a healthy, balanced average for most residential markets.
• Above 10%: Usually indicates a problem with the property, the management, or the local market economy.

Impact on Net Operating Income (NOI)

Vacancy rates directly impact your Net Operating Income (NOI). When underwriting a deal or evaluating a property, investors typically assume a “pro-forma” vacancy rate (often 5% to 8%) to ensure the cash flow calculations remain conservative. Failing to account for vacancy loss can lead to overestimating the profitability of an investment.