As a property owner, your investment is a business, and understanding your returns is essential. One key metric to track is your vacancy rate—but how do you calculate it, and what is a good vacancy rate? More importantly, what factors influence it, and how can you avoid common mistakes that many landlords make? In this guide, we’ll break down how to calculate a vacancy rate, why it matters, and what you can do to keep it low. Keep reading to get the insights you need to maximize your rental income.
Key Takeaways
- Vacancy Rate Directly Impacts Rental Income and Property Performance – A high vacancy rate means lost rental income and potential management issues, while a low rate signals strong demand and stable cash flow. Monitoring this metric helps landlords assess their property’s competitiveness and make strategic adjustments.
- Several Factors Influence Vacancy Rates – Population growth, rental pricing, and the local job market play key roles in determining how easily a property can attract tenants. Landlords should stay informed about market trends and set competitive rent prices to minimize vacancies.
- Common Landlord Mistakes Can Increase Vacancy Rates – Setting rent too high, neglecting marketing, and ignoring maintenance requests can all contribute to longer vacancy periods. Proactive management, market research, and tenant-focused practices help keep occupancy rates high and rental income steady.
Why Vacancy Rate Matters for Landlords
Before diving into the details, let’s define vacancy rate—simply put, it’s the percentage of vacant units compared to your total rental units. Honestly, you don’t need to be a financial expert to understand that empty rental units are directly affecting your ROI. That’s why vacancy rates matter—and they should matter to you.
So, if you want advice that fits your situation, teaming up with a good property management company in Philadelphia can help you figure out how to calculate vacancy rate to keep it low. Now, let’s get into why vacancy rates matter and how they impact your bottom line.
Direct Impact on Revenue
As we mentioned, your rentals are your business. Notably, empty units mean lost rental income. Therefore, in a nutshell, the higher the vacancy rate, the more income you’re losing. For that reason, you should be completely aware of the percentage.
Property Performance and Market Competitiveness
Vacancy rates are a key sign of how well your rental is doing. If your vacancy rate is high, it might signal that your property isn’t competitive in the market. There could also be issues with management, tenant retention, or pricing. It might also point to market challenges like fewer job opportunities or too many rentals in the area. By tracking trends, landlords can spot problems, tweak pricing, improve marketing, and make their properties more appealing to keep units filled.
Investor Confidence
For landlords with multiple properties or investor partnerships, a low vacancy rate is a key sign of success. It shows your rentals are well-managed, competitively priced, and in demand—reassuring investors and making your portfolio more appealing for future opportunities. Consistently high occupancy builds credibility, making it easier to secure financing, partnerships, and new properties. Investors and lenders trust landlords who maintain steady cash flow and strong management, paving the way for long-term growth.
Long-Term Growth & Stability
Keeping your vacancy rates low is the secret to long-term success. When your rental units stay occupied, you get a steady cash flow, and that makes it easier to budget for future investments and property improvements.
The Formula to Calculate Vacancy Rate
Knowing your vacancy rate helps you keep track of how well your rental property is doing. A high vacancy rate means you’re losing money on empty units, while a low one shows your rentals are in demand. Here’s a simple way to calculate it in percentage:
Vacancy Rate = (Number of Vacant Units / Total Number of Units) x 100
Imagine you own 20 rental units, but 3 of them are sitting empty. Lets calculate the percentage:
(3 / 20) x 100 = 15%
That means your vacancy rate is 15%. It might not seem like much, but it can still affect your income. The lower it is, the more stable your cash flow—and that’s always a good thing for your investment.
Making Sense of Vacancy Rates—and Keeping Them Low
Knowing how to calculate your vacancy rate is just the start. The real key is understanding what it means and using that insight to keep your properties filled. Think of vacancy rates as a pulse check on the rental market—they tell you if your pricing, location, and property management strategies are working or if you need to make adjustments. In cities like Philadelphia, vacancy rates can shift based on the neighborhood, competition, and demand, so staying on top of trends is essential.
What Your Vacancy Rate Says About Your Property
High Vacancy Rates – If your units sit empty too long, it could mean there are too many rentals available or not enough demand in your area. This might force landlords to lower rents or offer extra incentives to attract tenants.- Low Vacancy Rates – A low vacancy rate is a great sign—it means your property is in demand. You might even have the flexibility to raise rents without losing tenants, helping you boost profits.
- Shaping Your Strategy – Keeping an eye on vacancy trends helps you make smart decisions about pricing, marketing, and property improvements. If vacancies are rising, consider adjusting your rent or offering move-in perks. If demand is strong, focus on keeping your property appealing and your rental rates competitive.
What Affects Vacancy Rates?
Vacancy rates don’t just happen randomly—several factors play a role, some of which you can control:
- Population Growth – More people moving in means more demand for rentals. Keeping tabs on migration trends can help you invest in areas with strong renter interest.
- Rental Prices – If your rent is too high compared to similar properties, tenants may look elsewhere. Regularly checking local rates ensures you stay competitive.
- Job Market Strength – Areas with strong employment opportunities tend to attract more renters. If jobs are scarce, demand for housing can drop, leading to higher vacancies. Keeping an eye on local economic trends can help you plan accordingly.
At the end of the day, understanding and managing your vacancy rate is all about staying informed and adapting to the market. The more proactive you are, the easier it is to maintain steady rental income and keep your properties occupied.
Common Mistakes Landlords Make with Vacancy Rates
Now that we’ve covered the factors that affect vacancy rates let’s take a look at what you, as a property owner, might be doing that could hurt your rental business.
Not Keeping an Eye on Market Trends
Ignoring how vacancy rates are changing in your area can lead to missed opportunities and longer vacancies. If you’re not paying attention, you might miss signs of an oversupply or increased competition in the neighborhood, which could affect your rents and tenants.
Setting Rent Too High
When vacancy rates are high, setting your rent too high can make it even harder to attract tenants. It’s important to adjust your rental prices based on what’s happening in the market and what people are willing to pay.
Failure to Market Properties Enough
Even if you’ve got a great place to rent, if you’re not putting the effort into marketing it, you might find it sitting vacant. Using the right channels to get the word out about your property is key to filling vacancies fast.
Ignoring Maintenance Issues
When tenants have maintenance requests or concerns, and they’re ignored, it can lead to frustration and even prompt them to move out when their lease is up. A well-kept property is not just about the physical condition—it’s about responding to tenants’ needs in a timely manner. If you’re letting things slide with maintenance or not addressing tenant concerns, you risk longer vacancy periods.
Maximize Your Rental Income and Reduce Vacancy Rates
To wrap up on how to calculate vacancy rate, it’s a good idea to team up with a trusted property management company. They know the market, trends, and what tenants need, so your properties stay occupied while you focus on growing your investment.
At Bay Property Management Group, we make property management simple and efficient. Our team handles everything from marketing and leasing to maintenance and tenant relations so that you can focus on the bigger picture. Let us help you keep your property running smoothly. Get in touch with us today!
