What are Vacancy Rates?

property_vacancy_rates

What are vacancy rates and why are they an important indicator in property investing?  The vacancy rate is a measure to show how many rental properties in a given area are without tenants (vacant) over a defined time period.

For example, if we look at a fictional suburb called Rivertree which has 100 rental properties being offered and 95 of them have tenants and the other 5 are available to rent, then we would say there are 5 out of 100 properties which are vacant and therefore the suburb had a 5% vacancy rate for that month.

Why is this important?

When you buy an investment property, you must consider the rental income that can be made.  This will be determined by rental demand and vacancy rates are a good guide to rental demand in a given area.

Let’s say your property in Rivertree can rent for $300/week but it will be vacant for 5% of the year.  If rented for the full year, the property would earn:

$300 x 52 weeks = $15,600

But if we take off 5% for the vacant period, the amount is a bit smaller at $14,820.

What if the vacancy rate in that area is 10%?  Suddenly the $300/week return does not look so good.

If you can find an investment property with a low 1 to 2% vacancy rate and a high yield, you should receive a decent rental income for that investment.

Of course there will be other factors to consider such as rental yield and investing for capital growth, but if you use this in your critiera for researching real estate investments, it will help narrow down the properties you need to look at.

Where to Find Vacany Rate Information

Vacancy rate information can appear sporadically in the general media, such as the property or money section of your favourite newspaper.  Otherwise, you can check the following online sources:

SQM Research

Real Estate Institute of Australia


 

 

7 Responses to What are Vacancy Rates?

  1. The central area of our province here just announced a vacancy rate of 0.9% and the market for houses is booming.

    Our economy has been red hot as of late, driven mostly by the oil industry.

    Oh, in case you’re asking, it’s Newfoundland, Canada.
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  2. I think knowing the vacancy rates on the place to which you’re planning to move is really important. As much as possible a research is a much.

  3. So it also means that the lower the vacancy rate, the more challenging it is for people to find housing, because units or house they are interested in may not come up for sale or rent very often and a high vacancy rates may suggest economic depression which occurs when lots of people move out of the community leaving homes vacant.

  4. Leo Kingston says:

    Vacancy factor is one of the silent but deadly features of owning investment real estate. I had to learn the hard way myself about 40 years ago, and now I tell all the new investors I meet that calculating a reasonable vacancy factor is one of the most important things to consider in an ROI proforma.

  5. I bought a timeshare somewhere in Alaska thinking I could regain my expenses through renting it out. Sadly, I was disappointed. Few people are visiting the place for vacation and I hardly got my ROI. Anyway, it was a lesson. Now I have to be more sensitive of the economic flow of a certain place before making business with them. And check also the vacancy rate before investing on properties. It’s a critical step whether it is by market vacancies or economic vacancies.
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  6. Vacancy Rates here in Salt Lake City, UT are around 7 percent. Compared to a 18 percent in Houston I was very surprised. Curious to know what vacancy rates look like in other parts of the country…

  7. Vacancy Rate is also very important for the banks because a very high digits of the subject would indicate a prevailing real estate bubble in the area. With that, credit analyst will be given warnings to take extra prudence in approving loans.

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