Most investors underwrite a 5% vacancy rate because that is the number on the DSCR lender's worksheet. It is also the number that makes deals look good on paper. In practice, 5% means 18 days per year of downtime. That is barely enough time to repaint a unit, let alone find, screen, and move in a new tenant. This vacancy rate calculator shows what empty days actually cost you, and why the gap between assumed and actual vacancy is where rental property profits quietly disappear.
The vacancy rate formula
Two versions exist. Both are useful, but they measure different things.
Physical vacancy counts empty days. Economic vacancy counts lost dollars, including concessions, bad debt, and below-market renewals. Economic vacancy is always higher than physical vacancy. On a portfolio level, the difference can be 2% to 4%, which is enough to turn a cash-flowing property into a break-even one.
Physical vs economic vacancy: why the distinction matters
A unit can be physically occupied and economically vacant. The tenant who stopped paying in March but does not get evicted until June creates three months of economic vacancy with zero days of physical vacancy. A property manager offering one month free on a 12-month lease is giving away 8.3% of gross potential rent, but the unit shows as 100% occupied.
Lenders and most online calculators use physical vacancy. Experienced operators track economic vacancy because it captures the full picture. When you are underwriting a deal, use economic vacancy. When you are comparing your property to market averages, know which number the market data is reporting (it is almost always physical).
Why 5% vacancy is a fantasy in most markets
The 5% default means your property sits empty for 18 days per year. Here is what actually happens during a turnover:
- Tenant gives notice: 30 days (if they give the full notice period, which roughly 40% do not).
- Move-out, inspection, turnover repairs: 5 to 14 days for cleaning, painting, minor repairs.
- Marketing and showings: 7 to 21 days depending on market, season, and pricing.
- Application, screening, lease signing: 3 to 7 days.
- Move-in: Tenant wants the first of the month, which can add 5 to 15 days of dead time.
Total: 30 to 60 days per turnover. One turnover per year puts you at 8% to 16% vacancy. Two turnovers (common with duplexes) and you are well above 10%. The only way to run 5% vacancy consistently is to never lose a tenant, which is not a plan.
Actual vacancy rates by market
Metro-level averages mask neighborhood variation, but they set the baseline for underwriting. Here is what major markets are running in 2026:
| Market | Vacancy rate | What it means |
|---|---|---|
| Nashville, TN | 3% – 4% | Supply-constrained. Properties lease fast. You can underwrite at 5% to 6% with confidence. |
| Phoenix, AZ | 5% – 6% | New supply is hitting. The sub-5% days of 2021-2022 are over. Underwrite at 7% to 8%. |
| Memphis, TN | 8% – 10% | Higher turnover, lower-income tenant base. Underwrite at 10% to 12% or accept the surprise. |
| Indianapolis, IN | 6% – 8% | Balanced market with pockets of higher vacancy on the east side. Underwrite at 8% to 10%. |
| San Diego, CA | 3% – 4% | Extremely tight. Rents are high enough that even modest vacancy stings. Underwrite at 5%. |
| Cleveland, OH | 7% – 10% | Neighborhood-dependent. West side runs tighter than east side. Underwrite at 10% minimum. |
| Austin, TX | 6% – 8% | Overbuilt in multifamily. SFR vacancy is lower but climbing. The 2021 days of 3% are gone. |
| Tampa, FL | 5% – 7% | Insurance costs are pushing tenants to cheaper markets. Vacancy has crept up since 2023. |
Notice the pattern: markets with high rent-to-price ratios (Memphis, Cleveland, Indianapolis) tend to run higher vacancy. The cash flow that looks good on a spreadsheet gets eaten by the turnover that the spreadsheet did not model. Always cross-reference your NOI calculations with realistic vacancy for the specific market.
The true cost of vacancy: it is not just lost rent
Lost rent is the number everyone calculates. It is also the smaller part of the total vacancy cost. Here is a full breakdown for a $1,800/mo rental with one turnover:
| Cost category | Amount | Notes |
|---|---|---|
| Lost rent (45 days) | $2,700 | 1.5 months at $1,800 |
| Cleaning | $300 – $500 | Deep clean between tenants |
| Paint / touch-up | $500 – $1,200 | Full repaint on a 3BR runs $800 to $1,200 |
| Minor repairs | $300 – $800 | Blinds, fixtures, caulking, holes in drywall |
| Leasing fee (PM) | $900 – $1,800 | Half to full month's rent |
| Utilities during vacancy | $150 – $300 | You pay electric, water, gas while empty |
| Marketing / listing fees | $0 – $200 | Zillow, professional photos if needed |
| Total | $4,850 – $7,500 | 2.7 to 4.2 months of gross rent |
One turnover on an $1,800/mo property costs $5,000 to $7,500 all-in. On a property that nets $300/mo in cash flow, a single turnover wipes out 17 to 25 months of profit. This is why tenant retention is not a soft skill. It is the hardest financial lever in rental property management.
How vacancy cascades through your deal
Vacancy does not exist in isolation. It triggers a chain reaction across every financial metric you care about.
Take a concrete example. A property with $30,000 gross annual rent and $10,500 in operating expenses (excluding vacancy):
| Vacancy assumption | Effective gross income | NOI | DSCR (at $16,800 debt service) |
|---|---|---|---|
| 5% | $28,500 | $18,000 | 1.07 |
| 8% | $27,600 | $17,100 | 1.02 |
| 10% | $27,000 | $16,500 | 0.98 |
| 12% | $26,400 | $15,900 | 0.95 |
At 5% vacancy, you barely qualify for most DSCR loans (minimum 1.00 to 1.20 depending on lender). At 10%, you are underwater on debt service. The difference between a deal that works and one that bleeds is often a 5% vacancy swing. Run your numbers through a cash flow calculator with realistic vacancy before you make an offer.
Worked example: Memphis duplex at two vacancy rates
A $180,000 duplex in Whitehaven, Memphis. Each unit rents for $950/mo. Operating expenses run $6,200/year. Annual debt service on a 7.25% DSCR loan with 25% down is $11,040/year.
The 5% model shows $368/mo cash flow. The 10% model shows $273/mo. But the 10% model still does not account for turnover costs. Add one turnover per year at $3,500 all-in and that $3,280 drops to negative $220. The deal the spreadsheet loved is now a deal your bank account hates.
Strategies that actually reduce vacancy
Vacancy is not a fixed input. It is a managed outcome. Here are the levers that actually cut vacancy, ranked by how much they save:
- Price to market from day one.An overpriced unit sitting empty for 30 extra days costs $1,800 on a $1,800/mo rental. Pricing $50 below market and leasing in one week costs $600/year. The math is not close. Check Zillow, Rentometer, and your local PM's rent comps before listing. Price to move.
- Screen tenants relentlessly. A bad tenant creates two vacancies: one when they stop paying (economic vacancy while you pursue eviction) and one after they leave (physical vacancy during turnover). The eviction itself can cost $2,000 to $5,000 in legal fees and lost rent. Verify income at 3x rent minimum, check rental history with previous landlords, and run credit. Skipping this step to fill a unit fast is the most expensive shortcut in property management.
- Time lease expirations for spring and summer. A lease signed in August should expire in July, not February. If your tenant gives notice in November and you are filling a unit in January in Milwaukee, expect 45 to 60 days of vacancy. In Phoenix or Tampa, seasonality is less severe, but May through August is still the strongest leasing window everywhere.
- Offer renewal incentives. A $50/mo rent reduction for a renewal costs $600/year. A turnover costs $5,000 to $7,500. Even a $100/mo concession on a renewal ($1,200/year) saves $3,800 to $6,300 compared to turnover. Good tenants who pay on time and maintain the property are worth keeping at a modest discount.
- Respond to maintenance within 24 hours. Tenants who feel ignored start looking for their next apartment. A $150 repair done promptly saves a $5,000+ turnover. This is not customer service advice. It is vacancy reduction math.
Seasonal vacancy patterns across the US
Vacancy is not evenly distributed across the year. Ignoring seasonality is how investors end up with empty units in December, scrambling for tenants who are not looking.
| Season | Leasing demand | What to expect |
|---|---|---|
| Spring (Mar – May) | High | Families start planning summer moves. Listings get more views, units lease in 7 to 14 days. Best time for turnover. |
| Summer (Jun – Aug) | Highest | Peak moving season. School-driven relocations. Most markets see the shortest lease-up times and strongest rents. |
| Fall (Sep – Nov) | Declining | Demand drops off after Labor Day. October and November are transition months. Pricing power weakens. |
| Winter (Dec – Feb) | Lowest | Nobody wants to move in December. Expect 30 to 60 extra days of vacancy versus a summer turnover. Concessions may be necessary. |
In Sun Belt markets, the seasonal swing is less dramatic because of year-round migration. In the Midwest and Northeast, winter vacancy can double your lease-up time. Structure your leases so expirations land between April and August. It is the single easiest vacancy reduction tactic.
Vacancy rate vs cap rate: connected metrics
Vacancy is an input to NOI, and NOI is the numerator of cap rate. When you understate vacancy, you overstate NOI, which inflates the cap rate, which makes the deal look better than it is.
A seller advertising a 7% cap rate using 5% vacancy in a market that actually runs 10% is not lying, technically. They are just using the wrong vacancy number, which makes the cap rate wrong, which makes the asking price wrong. Always recalculate cap rate with your own vacancy assumption before making an offer. The seller's pro forma is a marketing document, not an underwriting document.
How to track your actual vacancy rate
Tracking vacancy sounds basic. Most landlords still do it wrong. Here is a simple method that actually works:
- Log every vacant day. Track the exact date a unit becomes available (tenant move-out, not lease end) and the exact date rent starts from the new tenant. The gap in days is your vacancy.
- Track economic vacancy separately. Any month where collected rent is less than market rent (concessions, bad debt, discounted renewals) has economic vacancy. Sum the difference at year-end.
- Calculate annually, not monthly. Monthly vacancy on a single unit is either 0% or 100%, which is useless. Annual vacancy (vacant days / 365) gives you a number you can actually compare to market data and use for underwriting your next deal.
- Benchmark against your submarket. If your portfolio runs 9% vacancy in a market that averages 6%, you have an operations problem, not a market problem. If you run 6% in a market averaging 9%, your pricing and management strategy is working.
Common vacancy rate mistakes
These errors show up in deal analyses constantly. Every one of them makes a deal look better than it is.
- Using 5% everywhere. Memphis is not Nashville. Cleveland is not Columbus. A single vacancy number applied across all markets is lazy underwriting that will cost you money in high-turnover markets.
- Ignoring turnover costs. Your cash flow model says 8% vacancy ($2,304/year on a $28,800 gross rent property). Your actual vacancy cost, including turnover expenses, is $5,500 to $7,000. The model is missing half the picture.
- Only counting physical vacancy. Concessions, bad debt, and collection losses are all economic vacancy. Ignoring them understates your true vacancy by 2% to 4%.
- Not adjusting for property class. A Class A property in a strong suburban market runs 3% to 5% vacancy. A Class C property in the same metro might run 8% to 12%. Using the metro average for both is a recipe for surprise.
How vacancy rate connects to your other metrics
Change your vacancy assumption by 3% and watch what happens to every other number in the deal:
- NOI: Vacancy reduces effective gross income, which reduces net operating income dollar for dollar. Every 1% of vacancy on $30,000 gross rent is $300 less NOI.
- Cash flow: Lower NOI with fixed debt service means lower cash flow. On leveraged deals, the impact is amplified because debt service does not flex with vacancy.
- DSCR: Lenders calculate DSCR using NOI divided by debt service. Higher vacancy means lower NOI, which means lower DSCR, which can disqualify your loan.
- Cap rate: Since cap rate equals NOI divided by property value, understated vacancy overstates both NOI and cap rate. You end up overpaying because the yield looks higher than it actually is.
Run your vacancy assumption through a rental property analyzer to see how it impacts all these metrics simultaneously. A single input change can flip a deal from green to red.
Frequently asked questions
What is a good vacancy rate for a rental property?
Anything under 5% is strong. Under 3% and you are probably underpriced. The national average sits around 5% to 7%, but that hides enormous variation: Nashville runs 3% to 4%, while Class C properties in Memphis hit 10% to 12%. Underwrite to your specific submarket, not a national average.
What is the difference between physical vacancy and economic vacancy?
Physical vacancy means no one is living in the unit. Economic vacancy means you are not collecting full rent, regardless of occupancy. A tenant who stopped paying three months ago but still has their furniture in the living room is physically occupied but economically vacant. A unit with $200/mo in concessions (one month free spread over the lease) is physically occupied but carrying economic vacancy. Lease-up periods, bad debt, and below-market renewals all count as economic vacancy. Most investors only track physical vacancy and undercount their actual losses by 1% to 3%.
Why is underwriting at 5% vacancy dangerous in most markets?
Because 5% assumes 18 days of vacancy per year. That is roughly two weeks of turnover: tenant moves out, you clean, paint, list, screen, and sign a new lease in 18 days. In practice, a turnover cycle takes 30 to 45 days in most markets, sometimes longer in winter. If you have even one turnover per year, you are already running 8% to 12% physical vacancy on that unit. The 5% number became a default because lenders use it on DSCR qualification paperwork, not because it reflects reality. Underwriting at 5% in a market like Memphis or Cleveland, where turnover runs higher and lease-up takes longer, is gambling with your cash flow.
How do turnover costs relate to vacancy rate?
Lost rent is only part of it. Every turnover adds cleaning ($200 to $500), paint ($400 to $1,200), minor repairs ($300 to $800), and often a leasing fee (half to full month's rent). On a $1,500/mo rental, one turnover runs $4,750 to $8,250 all-in, wiping out two to three months of gross rent.
What vacancy rate should I use for underwriting a new deal?
Start with the actual vacancy rate in your submarket, not a round number. Then add a buffer. In a tight market like Nashville (4% metro vacancy), underwrite at 6% to 7%. In a market with higher turnover like Memphis (8% to 10%), underwrite at 10% to 12%. For student housing or seasonal markets, 15% to 20% is not unusual and should be your baseline. The right vacancy assumption is the single biggest variable in your cash flow model. A 3% difference in vacancy on a $2,000/mo rental is $720/year, which is the difference between cash flowing and breaking even on many deals.
How does vacancy rate affect NOI and DSCR?
Vacancy hits NOI dollar-for-dollar, which then cascades into every ratio downstream. Take a property with $24,000 gross annual rent and $8,000 in operating expenses. At 5% vacancy, your effective gross income is $22,800 and NOI is $14,800. At 10% vacancy, effective gross income drops to $21,600 and NOI falls to $13,600. That $1,200 NOI swing does not sound dramatic until you see what it does to DSCR. If your annual debt service is $12,000, the 5% vacancy scenario gives you a 1.23 DSCR. The 10% scenario drops you to 1.13. Some DSCR lenders require 1.20 minimum. The difference between qualifying for a loan and getting declined can be a 5% vacancy assumption.
Do vacancy rates follow seasonal patterns?
Yes, and ignoring seasonality can cost you a full month of rent. In most US markets, leasing activity peaks from April through August when families move before the school year. November through February is the dead zone. If your tenant gives notice in October and you are trying to fill a unit in December in Minneapolis or Chicago, expect 45 to 60 days of vacancy minimum. In Sun Belt markets like Phoenix or Tampa, seasonality is less severe because of year-round migration. Smart landlords structure lease expirations to avoid winter turnover. Renewing a lease in November, even at a modest concession, is almost always cheaper than a January vacancy.
What strategies actually reduce vacancy?
Price correctly from day one: an overpriced unit sitting empty 30 extra days costs more than pricing $50 below market. Screen tenants thoroughly, because a bad tenant creates two vacancies. Offer renewal incentives ($50/mo discount is far cheaper than a $4,000+ turnover). Time lease expirations for spring so you never fill a unit in December.