The Vacancy Rate Nobody Talks About

A 5% vacancy rate is everywhere in rental pro-formas. Spreadsheet templates default to it. YouTube walkthroughs assume it. Mentors repeat it. The problem is that 5% is a national average smoothed across thousands of submarkets — and your property doesn't sit in a national average. It sits in a specific zip code, in a specific price tier, competing against a specific stock of rentals.

Plugging in the wrong vacancy rate doesn't just nudge your numbers. It can flip a marginal deal from cash-flow-positive to cash-flow-negative, or make a genuinely strong market look weaker than it is. Before you run your full monthly pro-forma in the Rental Cash Flow Calculator, you need a vacancy figure that reflects your actual market.

What Vacancy Rate Actually Measures

Vacancy rate is the share of available rental units that are unoccupied at a given time. A 5% vacancy rate means 5 out of every 100 rentable units sit empty. In a pro-forma, it reduces your gross scheduled rent to effective gross income:

Effective Gross Income = Gross Scheduled Rent × (1 − Vacancy Rate)

If your property rents for $1,800/month and you assume 5% vacancy:

• Gross Scheduled Rent (annual): $21,600
• Vacancy loss (5%): −$1,080
• Effective Gross Income: $20,520

Swap that assumption to 10% — which is realistic in many slower markets — and effective gross income drops to $19,440. That $1,080 difference flows straight through to net operating income and cash flow. On a leveraged deal with thin margins, it's often the difference between a positive and negative monthly number.

Where to Find Your Real Local Vacancy Rate

There is no single database that spits out a hyperlocal vacancy figure for your zip code, but several public and semi-public sources get you close.

U.S. Census Bureau — Housing Vacancies and Homeownership (HVS)

The Census Bureau publishes quarterly vacancy rates by region and metropolitan area through its Housing Vacancies and Homeownership survey. This is the most authoritative public source. It won't give you a neighborhood-level number, but it will tell you whether your metro skews above or below the national average — and by how much.

CoStar and Apartment List Market Reports

CoStar (institutional access) and Apartment List (free, public reports) publish submarket-level vacancy data for multifamily. If you're analyzing a small multifamily or a single-family rental in a metro with active apartment reporting, these can get you within a few percentage points of your actual submarket.

Local Property Management Companies

A property manager who actively leases in your target neighborhood will quote you a vacancy rate from lived experience. Call two or three and ask: "What's your average days-on-market for a two-bedroom in this zip, and what's your current vacancy across your portfolio?" Convert days-on-market to an annual rate: a unit that sits vacant 18 days between 12-month leases carries roughly a 5% vacancy rate (18 ÷ 365 ≈ 4.9%).

Your Own Rental Comps

When you pull rental comps on Zillow, Apartments.com, or Rentometer, note how long listings have been active. A market where comparable units sit for 60+ days before leasing implies a materially higher vacancy than one where units are gone in a week. This is qualitative, but it calibrates your assumption.

How Vacancy Rate Shifts the Whole Pro-Forma

Vacancy doesn't just reduce income — it compounds through every income-dependent line item. Consider a single-family rental with $2,000/month gross rent and $1,400/month in operating expenses plus debt service.

| Vacancy Assumption | Effective Gross Income (Annual) | Annual Cash Flow | |---|---|---| | 3% | $23,280 | $1,080 | | 5% | $22,800 | $600 | | 8% | $22,080 | −$120 | | 12% | $21,120 | −$1,080 |

Assumes $2,000/month gross rent, $1,400/month total expenses and debt service. Operating expenses held constant for illustration.

The deal that looks like $600/year cash flow at 5% is actually losing $120/year at 8% — a realistic vacancy for a B-class property in a mid-tier market with average tenant turnover. This is why the vacancy assumption deserves the same scrutiny as your rent estimate or your cap rate. If you've been working through cap rate as your primary screen, vacancy is one of the inputs that can make that screen misleading if it's wrong.

A Worked Example: Two Markets, Same Property

Assume you're evaluating identical duplexes in two different metros. Each unit rents for $1,100/month. Gross scheduled rent is $26,400/year.

Market A — Tight rental market (Sun Belt suburb, low supply) Local vacancy from HVS and property manager interviews: 3.5% Effective Gross Income: $26,400 × 0.965 = $25,476

Market B — Softer rental market (Rust Belt mid-size city, older stock) Local vacancy from HVS and property manager interviews: 9.0% Effective Gross Income: $26,400 × 0.91 = $24,024

That's a $1,452 annual income gap on identical gross rents — before you touch expenses or financing. If operating expenses are $14,000/year and debt service is $10,800/year, Market A cash flows $676/year and Market B loses $776/year. Same purchase price, same rent, different vacancy assumption based on real data.

This is the calculation to run in the Rental Cash Flow Calculator before you make any offer. Enter your market-researched vacancy figure, not a default, and watch how the bottom line responds.

The 1% Rule and Vacancy: A Caution

The 1% rule screens for gross rent as a percentage of purchase price. It says nothing about vacancy. A property that clears the 1% threshold in a 10% vacancy market may cash-flow worse than one that barely misses the threshold in a 3% vacancy market. The screen is a filter, not a verdict — and vacancy is one of the reasons why.

Assumptions to Label in Your Pro-Forma

When you record your vacancy assumption, note:

• Source: Census HVS, property manager interview, CoStar submarket report
• Date: Vacancy rates shift with supply and demand — a figure from 2022 may not reflect 2026 conditions
• Property type: Multifamily vacancy often differs from single-family vacancy in the same market
• Price tier: Class A units typically carry lower vacancy than Class C in the same metro

Labeling these keeps your model honest and makes it easier to stress-test the assumption later.

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This guide is informational only and does not constitute investment, tax, or legal advice. Vacancy rates vary by market, property type, and time period. Always verify local data before finalizing any pro-forma.

Last reviewed: July 2026

Frequently asked questions

Is 5% vacancy a reasonable assumption for most markets?

It depends entirely on the market. The U.S. national rental vacancy rate has ranged from roughly 5% to 9% over the past decade, but individual metros and submarkets diverge significantly from that average. Sun Belt cities with strong job growth have seen vacancy rates below 4%, while some Rust Belt markets run above 10%. Use 5% only if local data supports it.

How do I convert days-on-market into a vacancy rate?

Divide the average days vacant between tenancies by 365 (or 366 in a leap year). A unit that sits empty for 18 days between 12-month leases carries approximately 4.9% vacancy. If turnover is faster — say, 30 days between leases — vacancy climbs to about 8.2%. This method works best when you have actual leasing data from a local property manager.

Does vacancy rate include units that are occupied but not paying rent?

No. Standard vacancy rate counts physically unoccupied units. Credit loss — tenants who occupy the unit but don't pay — is a separate line item sometimes called "collection loss" or "bad debt." Conservative pro-formas budget for both: a vacancy rate for physical emptiness and a credit loss factor (often 1–2%) for non-payment.

How often do local vacancy rates change?

Vacancy rates respond to new supply, job growth, seasonal demand, and broader economic conditions. The Census Bureau publishes HVS data quarterly. In fast-moving markets — a city adding a large apartment complex or experiencing a major employer departure — conditions can shift meaningfully within a single year. Treat any vacancy figure older than 12 months as a starting point, not a final answer.

Should I use the same vacancy rate for every unit in a multi-unit property?

Not necessarily. In a duplex or small multifamily, each unit is either vacant or occupied — there's no partial vacancy. Applying a vacancy rate to the whole property models the long-run average across multiple turnover cycles. For a two-unit property, a 5% annual vacancy rate means you expect roughly 18–19 days of vacancy per unit per year on average, which is a reasonable planning assumption if local data supports it.