Glossary · UNDERWRITING

Vacancy Rate

The percentage of a property's rentable units or space that is unoccupied during a given period.

Vacancy Rate = (Vacant Units / Total Units) x 100. A 12-unit property with 2 empty units has a 16.7% physical vacancy rate. Economic vacancy is slightly different - it accounts for units physically occupied but not paying rent (month-to-month delinquency). Healthy stabilized vacancy in most markets runs 5-8%. Vacancy directly reduces NOI: each vacant unit loses 100% of its rent but retains most fixed costs. In seller-financed acquisitions, underwriting with 8-10% vacancy (rather than the seller's claimed 2-3%) provides a conservative NOI estimate that sets realistic note payment capacity.

Related Terms

NOI

Net Operating Income - gross revenue minus operating expenses, before debt service and capital expen

OpEx

Operating Expenses - all recurring costs of running a property, excluding debt service and capital e

Rent Roll

A schedule listing each rental unit, current tenant, lease dates, rent amount, and payment status.

T-12

Trailing 12 Months - a property's actual operating income and expenses over the prior 12-month perio

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