Vacancy Estimates
Very few properties will never have a vacancy.
So, when we do our analysis, you will notice we usually use a percentage of time that the house will be vacant.
If we estimate a house will be vacant 1 out of every 20 months (or about 1 month every two years), then we would use 5% for our vacancy allowance.
If we estimate a house will be vacant 1 out of every 10 months (or about 1 month every year), then we would use 10% for our vacancy allowance.
If we subtract the dollar amount that represents the vacancy allowance percentage from the monthly rent, we get a better indication of what the property really brings in, on average, each month even including vacancy.
For example, if rent was $1,000 per month and you had a 5% vacancy allowance that means that, on average, even with the vacant months included, you are seeing $950 per month from the property. Of course, you actually collect $1,000 per month from the tenants when they occupy your property, but for the time your property is vacant you are collecting zero (not taking into account a discussion of security deposits and how that can positively affect your numbers).