Most investors use 5% vacancy across the board.
Every deal. Every market. Every property type.
It’s lazy. And it’s costing you money.
Here’s the truth: vacancy rates aren’t universal.
They’re hyperlocal. And they change.
A Class A property in downtown Austin has different vacancy than a Class C property in rural Texas.
A 200-unit complex behaves differently than a 20-unit building.
Your vacancy assumption should reflect these differences.
Get this wrong and you’ll either overpay for deals or walk away from good ones.
The Problem with Generic Vacancy Rates
Using 5% vacancy for every deal is like using the same tire pressure for a bicycle and a truck.
It might work sometimes. But it’s not optimal.
Different property types have different tenant profiles.
Class A tenants with high incomes and long-term leases create different vacancy patterns than Class C tenants with month-to-month flexibility.
Market conditions matter too.
A tight rental market with 2% vacancy across the board means your 5% assumption is way off.
A saturated market with new construction everywhere might push you to 8% or higher.
How to Calculate Real Vacancy Rates
Start with market data, not rules of thumb.
Check actual vacancy rates for your submarket.
Look at properties similar to yours — same class, same size, same area.
Property management companies often have this data. So do commercial brokers.
Adjust for your specific property.
Is your building older than the comps? Add 1-2%.
Does it need major renovations? Add more.
Is it well-managed with strong curb appeal? Maybe subtract 1%.
Factor in your business plan.
Planning major renovations? Expect higher vacancy during construction.
Raising rents aggressively? Some tenants will leave.
Your vacancy assumption should match your strategy.
Consider seasonality and market cycles.
College towns have different vacancy patterns than business districts.
Tourist areas fluctuate with seasonal demand.
Your underwriting should account for these patterns.
The Real Cost of Getting This Wrong
Underestimate vacancy and you’ll bid too high.
Your cash flow projections will be wrong from day one.
You might even lose money on what looked like a profitable deal.
Overestimate vacancy and you’ll walk away from good deals.
Someone else will buy them at prices that make sense with proper vacancy assumptions.
Most investors treat vacancy like a fixed cost.
It’s not. It’s a variable that reflects your property, your market, and your management.
Get it right and your underwriting becomes instantly more accurate.
Your offers make more sense. Your returns are more predictable.
This is exactly the kind of detail we cover in depth at Ironclad Underwriting.
Real underwriting. Not spreadsheet guessing.
Want to see how proper underwriting works? Watch our free masterclass and learn the system that eliminates guesswork from your deals.
