Vacancy Loss

Vacancy Loss is one of the most common problems faced by real estate investors and refers to the amount of lost income that occurs when a property is not inhabited by a rent-paying tenant. There are two main scenarios in which Vacancy Loss will occur. The first is that the property is currently empty and uninhabited. No one is paying to live or work there. The other is that the property is occupied, but the tenant is unwilling or unable to pay the required monthly rent. Vacancy Losses typically tend to be low in high demand markets and high in high supply markets. Smart real estate investors will prepare properly for Vacancy Loss to occur. Realistically, it is likely that some of your properties will, at some point, be unoccupied for a period of time, or will be inhabited by tenants who fall behind on the rent. It is very important to calculate your estimated Vacancy Loss in order to arrive at an accurate total for your gross operating income. It is usually calculated as a percentage rate of the total gross scheduled income. The percentage to use will vary depending on the past history of the property and economic factors in your local market. It is important to measure your property’s turnover rate with the market rate. You can reduce your Vacancy Loss by keeping a close eye on your turnover rate and making sure it beats the average rate in your local area.