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).
Ask the real estate professional we refer you to for updated vacancy statistics for your market as you look at these properties.