Vacancy rates can reveal a lot more about a vacation rental property than many investors actually realize. In fact, it’s not the least bit hyperbolic to suggest that rental vacancy rates are one of the single most important economic indicators to consider when investing in vacation rentals. Today’s buy and hold investors can’t expect to make a sound investment if they don’t have a finger on the pulse of their own properties. Therefore, it’s in your best interest to not only know what vacancy rates are, but how they will impact your investments and how to calculate them.
A vacation rental property’s vacancy rate, as its name suggests, is an indicator for the amount of time a subject property remains out of use. The vacancy rate is nothing, if not for an objective viewpoint of exactly how often a rental property fails to remain occupied over the course of a given time period. It is worth noting, however, that a vacancy rate isn’t simply expressed as the number of days a property remains vacant, but rather as a percentage point. That way, it’s a lot easier to juxtapose your vacancy rate with its counterpart: the occupancy rate. If for nothing else, a home can only be classified one other way if it’s not vacant: occupied. More specifically, if a home is vacant for 40% of the year, it’s safe to assume it’s occupied the remaining 60%.
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Calculating a single property’s vacancy rate is relatively easy. Simply divide the number of days the unit remains unoccupied by the number of days in a predetermined period of time. If you want to determine the vacancy rate for a year, simply divide the number of days the property wasn’t rented out by 365.
Let’s say, for example, your vacation rental property was fortunate enough to have been rented out every single weekend of the year. Since there are 52 weeks in a year, the home was rented out for a total of 104 days. That said, we don’t want to calculate the home’s occupancy rate, we want to calculate its vacancy rate, so we need to look at how many days the home wasn’t being rented out. If the home was occupied 104 days out of the year, it was vacant for 261 (365-104). Next, take the number of days the home was vacant for (261), and divide it by 365. The number you end up with is 0.7150. To turn the answer into a vacancy rate, however, simply multiply it by 100, and you’ll end up with 71.5%. Therefore, if you were to only rent out your vacation home on the weekends (Saturdays and Sundays) for an entire year, your vacancy rate would be 71.5%.
To be perfectly clear, there isn’t a single, universal vacancy rate that today’s investors could collectively describe as “good.” Not only is good a relative indicator, but the factors in play will vary dramatically from market to market. What may be considered a great vacancy rate in one neighborhood could leave a lot to be desired in another.
Of course, you can argue that the lower the vacancy rate, the better (and you wouldn’t be wrong), but there’s a lot more to it than that. That said, the most important indicator of a vacation rental property isn’t necessarily the vacancy rate, but rather the cash flow. It is entirely possible for a property in, let’s say San Diego, to boast a high vacancy rate, but still net positive cash flow for its owners. High rental prices in some areas can easily offset high vacancy rates. All things considered, there’s only one thing investors can say with confidence: the lower the vacancy rate, the better.
I want to make it abundantly clear, however: vacancy rates are not the only indicator that matter, but are rather one small cog in the machine of indicators that can tell you whether or not a vacation rental property is worth buying into. In other words, vacancy rates are rendered moot in the absence of things like rental rates, acquisition costs, expenses, etc. You need everything to make a sound decision.
Here is a list of cities that have some of the lowest vacancy rates in the country:
It is entirely possible to influence rental vacancy rates with strategic, well-calculated moves. However, the best way to limit the time your property sits unoccupied is to exercise as many options at your disposal as possible. Here are some of my favorite tricks for reducing vacancy rates, and they won’t break the bank:
The Cleaner, The Better: It goes without saying, but a clean vacation rental is an occupied vacation rental. There’s absolutely no reason a vacation rental should sit on the market without being professionally cleaned. More importantly, a clean rental property shows well. Prospective renters will be more likely to occupy it if it looks move-in ready. If you want to reduce vacancy rates, make sure your property is always in a showable condition. That way it can impress renters in a moment’s notice.
Keep It Operational: Not unlike keeping your vacation rental clean, keeping it operational will ensure that renters aren’t disappointed when they show up unannounced. The idea here is that the place is ready. A ready home, after all, is more likely to be an occupied home. More importantly, don’t give prospective renters a reason to look elsewhere.
Mind Curb Appeal: The first thing prospective renters are bound to see of your property is its curb appeal. Whether it’s online in a photo or in person, curb appeal represents your best chance to make a good first impression, so make it count. The first time someone sees the outside of your vacation home, they should instantly want to see more. In other words, make the outside so attractive that they can’t help but want to see the inside.
Remain Competitive: In order to remain competitive in today’s rental landscape, landlords need to price their units attractively. There is a fine line between attracting tenants and making money. Of course, it’s easy to want to charge more, but you need to realize you will fill more vacancies if your prices are competitive.
Ask For Reviews: In the event you have been able to satisfy renters with your vacation property, politely request they leave reviews. Reviews are, after all, the single greatest marketing strategy known to vacation rental property investors. Not only are they free, but prospective renters are more likely to listen to satisfied customers than the landlords themselves.
Practice Punctuality: I maintain that one of the best things landlords can do to fill vacancies is to practice punctuality. More specifically, however, it’s in their best interest to respond to inquiries as fast as possible. No inquiry about a property should go longer than 24 hours without eliciting a response. In fact, the sooner you respond to questions, the more appreciative and likely renters will be to commit to renting your property.
Vacancy rates are nothing, if not one of the most important economic indicators for buy and hold investors to pay close attention to. Rental vacancy rates, for that matter, provide valuable insight into a property’s potential, and even its shortcomings. More specifically, however, today’s buy and hold investors can’t expect to make a sound investment if they don’t have a finger on the pulse of their own properties.