Vacancy

 

Wouldn’t it be sweet if you never had any vacancy in any of your units? Your tenants give 60 days notice, and then you have the next tenant ready to move in right away? And you don’t have to do any repairs or maintenance or freshening up?

 

Yeah right.

 

In reality, you’re going to have vacant units, the best practice is to plan for them with your financial modeling.

 

If the multi-family building you’re analyzing is in a desirable area, is in good condition, and the rents are in line with what other units are renting for, you might get away with using 5% as your vacancy factor.

 

If the building isn’t great, or if the neighborhood isn’t great, it probably makes more sense to use a number closer to 10% for your vacancy.

 

Then, as you’re working your way through your model, just knock off 5% (or 10%) from the gross rent each month.

 

That way, when you have a tenant who moves out, you’ve already factored some lost rent into the financial analysis.

Next Article: Reducing Vacancy

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