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Understanding Your Vacancy Rates and How to Reduce It

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Vacancy Rates

Vacancy Rates: Vacancies are the last thing you want as a landlord because they mean a unit is not generating any income. Unfortunately, the occasional vacancy is unavoidable — tenants move out and you may need to prepare the property before you can show it to new renters. In order to keep vacancy periods as short as possible in these scenarios, you need to advertise your rental on the best rental listing websites.

If you own many properties that contain several units each, it may be tempting to estimate your vacancy rate, but it’s important to know it exactly. Only by calculating your actual vacancy rate will you gain a clear picture of the profitability of your current holdings, make accurate revenue projections, and implement plans to increase your vacancy periods.

What Does Vacancy Rate Mean?

Before going further, it’s important to be clear about what we mean by vacancy rate. Simply put, it is the number of units and length of time that they are unoccupied. In other words, the vacancy rate is the inverse of the occupancy rate.

Typically, landlords compare the vacancy rate of their property with those of similar properties in the same area. Another way to use the metric, though, is to consider the rate for a whole neighbourhood. This will give you an idea of renter demand in the area and may be able to help you estimate the projected rate of the property you are looking at.

A high rate is a cause for concern, as it may suggest there is something unappealing about the building or area. On the flip side, a low rate is a sign that people want to live there.

Calculating Vacancy Rate

There are three ways you can calculate the vacancy rate. These are physical vacancy rate, market vacancy rate, and economic vacancy rate.

Figuring out the physical vacancy rate is simple: you just need to know how many units are vacant and divide this by the total number of units. Multiply by 100 to arrive at a percentage. Put as a formula, this is:

Vacant units / Total units x 100

For single-family homes and other types of properties that contain just one unit, you can consider the average vacancy rate for the year:

Total time vacant over the year / Amount of time you could have rented the property x 100

Market vacancy rate involves comparing the vacancy rate of your property to that of the asset class as a whole. This will show you if you are above or below average. As an example, the rental vacancy rate in the U.S. as a whole in Q3 of 2021 was 5.8%.

Lastly, the economic vacancy rate considers the amount of rent you were unable to collect compared to the potential total from all your units. Many landlords find this more useful than the physical vacancy rate because it gives them an insight into potential and lost income. Use the same formula, but input monetary values:

Amount of rent you were unable to collect / Total potential rent for the year x 100

What Influences Vacancy Rate?

It’s important to think about the reason for your vacancy rate. Some common causes of high vacancy rates include:

  • The property is old or in poor condition
  • You’re facing competition from new properties
  • You’ve been repairing or making renovations to the property
  • The property is new on the market
  • A tenant recently left and you haven’t been able to find a replacement tenant
  • Your marketing is ineffective
  • The property is far from amenities, like grocery and retail stores or transportation
  • The neighbourhood is undesirable
  • There has been a change in economic conditions

What to Do If You Have a High Vacancy Rate?

The cause for the high vacancy rate will influence the steps you need to take. As the reason may not be immediately obvious, it’s useful to implement any of the following you believe could improve your property vacancy rate. As well as marketing your property on the best free rental listing sites you can also do the following:

1. Lower Your Rent

You should only charge a high rent if your property is desirable and there is a high demand for units in your area. Overcharging will make it more difficult to find applicants and tenants you do have may leave at the end of the lease if they’re able to find a better deal.

2. Fulfill Maintenance Requests Faster

A second way you may be losing tenants is if you’re too slow at responding to maintenance requests. It’s important to resolve issues as quickly as possible, even if they seem minor to you. Presenting yourself as a great landlord will mean tenants are more likely to stay, including when there are properties in the area available at a lower rent.

3. Consider If Renovations Are Necessary

Renovations can make your property more desirable, which will attract more applicants. The downside, though, is that your property will be off the market while you’re completing the repairs. Weigh the pros and cons to determine the best strategy for you — the long-term benefits could be worthwhile even if this means a higher vacancy rate during the year you are renovating your property. One option is to find a middle ground by choosing repairs that will make a big difference to appearances without taking too much of your time.

4. Add Amenities

To compete with other properties in your area (especially new buildings and better-located properties), think of how you could increase the appeal of your building. For instance, you can install new appliances like a washer and dryer, offer tenants storage space in the basement, or provide parking.

 

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Salman Ahmad is a seasoned writer for CTN News, bringing a wealth of experience and expertise to the platform. With a knack for concise yet impactful storytelling, he crafts articles that captivate readers and provide valuable insights. Ahmad's writing style strikes a balance between casual and professional, making complex topics accessible without compromising depth.

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