What Vacancy Rate to Use When Analyzing Rentals (By Market Type)

You're running numbers on a rental property and you get to the vacancy field. Should you plug in 5%? 8%? The "industry standard" you read about somewhere? Your assumption here can swing your projected cash flow by hundreds of dollars per month, so getting it wrong matters.

The short answer, as rules of thumb: 5% in tight urban markets, 5% to 7% in stable suburbs, 8% to 10% in Midwest cash flow markets, 10% to 15% for college towns and Class C or D properties, and 15% to 25% for seasonal markets rented long-term. Then check the deal at one and a half times and two times that number.

The problem with a single default is that vacancy varies widely by market type. Using the same assumption for a Class A apartment in downtown Seattle and a Class C duplex in a Midwest college town makes no sense. Here's how to pick the right number for your specific situation.

Why Vacancy Assumptions Make or Break Your Analysis

Vacancy is one of the most underestimated variables in rental property analysis. Most investors obsess over purchase price, interest rates, and rent amounts. Then they slap in a generic 5% vacancy rate without much thought.

Consider a property generating $2,000/month in gross rent. At 5% vacancy, you're assuming $100/month lost rent, or about 18 days of vacancy per year. At 10% vacancy, that jumps to $200/month, or 36 days. On a deal with $300/month projected cash flow, that extra $100 takes a third of it.

Vacancy also has a compounding effect. When a unit sits empty, you're not just losing rent. You're paying for marketing, cleaning, make-ready repairs, and potentially concessions to attract the next tenant. A realistic vacancy assumption accounts for all of this.

National Averages: A Starting Point, Not an Answer

The U.S. Census Bureau tracks rental vacancy rates quarterly. According to their historical data, the national rental vacancy rate has hovered between 5.5% and 7.5% over the past decade, and it was around 7.1% at the time of the Q3 2025 release shown below. The Census Bureau updates the series every quarter, so follow the link for the latest reading.

But national averages hide massive regional variation:

Even these regional numbers are too broad. A property in Austin, Texas behaves nothing like one in rural Mississippi, despite both being in the "South." You need to drill down further.

Market Types and Recommended Vacancy Assumptions

Here is the whole section in one table. These are my underwriting rules of thumb, not measured market statistics, and the reasoning for each follows.

If you are still deciding between markets, the post on how to choose a rental market and the market rankings give you the supply and demand context behind these ranges.

High-Demand Urban Markets (3-5%)

Think San Francisco, Boston, Seattle, and similar cities where rental demand consistently outpaces supply. These markets feature:

• Sub-4% market vacancy rates
• Multiple applications within days of listing
• Minimal concessions needed
• Short turnover periods (often under 2 weeks)

I use 5% vacancy for my underwriting in these markets, even when actual market vacancy is lower. This provides a small cushion without being overly conservative. If you're analyzing a well-located property in excellent condition, you might justify 3-4%. But don't go below 3% unless you have a compelling reason.

Stable Suburban Markets (5-7%)

The suburbs of major metros typically have slightly higher vacancy than urban cores but remain predictable. These areas often have strong school districts, driving consistent family renter demand.

For a typical suburban single-family rental or small multifamily, 5-7% works well. I lean toward 7% for older properties or areas with lots of new construction competing for tenants.

Midwest and Heartland Markets (7-10%)

Cities like Indianapolis, Cleveland, Kansas City, and Memphis offer higher cap rates partly because they carry higher vacancy risk. The renter pools are smaller, economic bases are less diversified, and turnovers tend to take longer.

I underwrite at 8-10% vacancy for these markets. Yes, you might achieve lower actual vacancy in a good year. But these markets also experience sharper downturns when major employers cut jobs. The conservative assumption protects you.

College Towns (10-15%)

Renting near universities presents unique challenges. You're dealing with:

• Highly seasonal demand (August move-ins)
• Guaranteed annual turnover
• Potential summer vacancy (unless you structure 12-month leases)
• Heavier make-ready work between tenants

I use 10-12% for properties near major state universities with strong housing demand. For smaller schools or towns where students have many housing options, bump that to 12-15%.

Seasonal Markets (15-25%)

Beach towns, ski resort areas, and vacation destinations often run as furnished short-term rentals. If you're analyzing these as traditional long-term rentals, recognize that the tenant pool shrinks sharply in the off season.

A beach cottage in a town that empties out from October through April needs 15-20% vacancy built into your numbers. If you're comparing short-term rental income (which carries its own vacancy considerations) to long-term rental strategies, model both scenarios. The post on short-term vs long-term rental strategy walks through that comparison.

Distressed Areas and Class C/D Properties (10-15%+)

Lower-income neighborhoods and older properties with deferred maintenance experience higher turnover and longer vacancy periods. Tenancies in these segments tend to be shorter, and evictions are more common. Properties take longer to re-lease because you're working with a smaller qualified applicant pool.

I rarely go below 10% for Class C properties and often use 12-15% for Class D. The higher cash-on-cash returns these properties promise on paper often evaporate once you account for realistic vacancy and turnover costs.

A Note on Section 8 Tenancies

Voucher tenancies are the one case where I go below the range for the surrounding market. Moving with a voucher takes a new search, a new approval and a new inspection, so tenancies tend to run long. I have used 3% on properties with established Section 8 tenancies. It is not free: re-leasing a voucher unit can take longer because of the approval and inspection steps, and the tenant-paid share still carries collection risk. The details are in underwriting Section 8 rent, vacancy and collection loss and the Section 8 vs market rate cash flow comparison.

A Worked Example: Same Property, Different Markets

Let's say you're analyzing a $185,000 duplex generating $1,800/month gross rent ($900/unit). Your other assumptions:

• 25% down payment ($46,250)
• 7.25% interest rate, 30-year fixed (an example rate), which makes principal and interest $947/month, or $11,358/year, on the $138,750 loan
• $3,600/year property taxes
• $1,400/year insurance
• $1,800/year maintenance reserve
• $1,080/year property management (5% of scheduled rent, held constant to isolate the vacancy effect)

Here's how different vacancy assumptions change your returns:

Here is the 5% row step by step. Gross rent is $21,600. Subtract $1,080 of vacancy and $7,880 of operating expenses ($3,600 + $1,400 + $1,800 + $1,080) and NOI is $12,640. Subtract $11,358 of debt service and annual cash flow is $1,282, or $107/month. Divide $1,282 by the $46,250 down payment and the cash-on-cash return is 2.8%.

The difference between 5% and 12% vacancy is $126/month in cash flow. On this deal that is the difference between a thin positive and a loss. The property stops covering its mortgage at about 10.9% vacancy ($2,362 of cushion divided by $21,600 of rent), which is the idea behind break-even occupancy. A buyer who plugged in 5% because it is the default would call this a cash-flowing duplex. A buyer in a market where 10% is realistic would see that it is not one at this price and rate.

How to Research Your Specific Market's Vacancy Rate

Check Local Data Sources

Your city or county likely tracks rental vacancy through housing reports or economic development publications. Property management companies in the area can share their portfolio vacancy rates. Local apartment associations often publish market surveys.

Look at Days on Market

Search Zillow, Apartments.com, or Craigslist for rentals in your target neighborhood. How many listings have been sitting for 2+ weeks? Are landlords offering move-in specials? High days-on-market and frequent concessions signal elevated vacancy.

Talk to Property Managers

Call three property management companies and ask about typical vacancy in your target area. They'll often share surprisingly specific data because they want your business if you buy.

Analyze Comparable Properties

If you're buying an occupied property, ask the seller for historical vacancy data. Request the past 2 to 3 years of rent rolls. Gaps tell you what actual vacancy looked like. The post on verifying seller rent rolls shows how to check that what you are handed matches reality.

Three Mistakes That Lead to Bad Vacancy Assumptions

Mistake 1: Using the Same Number Everywhere

I see this constantly in investor forums. Someone learned to use 8% vacancy for their first deal in Phoenix and keeps using 8% when they analyze properties in completely different markets. Memphis doesn't behave like Phoenix. A Class C triplex doesn't behave like a Class A townhome.

Adjust your vacancy assumption for every property based on its specific market, property class, and tenant profile.

Mistake 2: Ignoring Turnover Costs

Vacancy rate only captures lost rent. But turnovers cost money beyond the vacant days. Cleaning, painting, minor repairs, advertising, and showing the unit all add up.

For a $1,200/month apartment, a typical turnover might cost $300-600 in make-ready expenses plus 3 weeks of vacancy (roughly $900). That's $1,200-1,500 per turnover. If you're turning units annually, factor this into your operating expense assumptions, not just your vacancy rate.

Mistake 3: Assuming Your Property Will Beat the Market

New investors often convince themselves their property will outperform market averages. "My unit will be renovated, so it'll rent faster." Maybe. But renovated units also attract tenants with more options, who might leave for a slightly better deal. And your renovated unit still sits in the same market with the same economic fundamentals.

Underwrite to market averages or slightly worse. If you outperform, that's upside. If you hit your assumptions, you planned correctly.

When to Stress Test Your Vacancy Assumption

Beyond picking the right baseline number, stress test your deal at higher vacancy levels. I run every analysis at three vacancy scenarios:

1. Base case: My realistic market-based assumption
2. Moderate stress: 1.5x my base assumption
3. Severe stress: 2x my base assumption

For a deal I'm underwriting at 8% vacancy, I also check the numbers at 12% and 16%. Can the property still cover its mortgage at 12%? That's my minimum threshold. If vacancy doubling puts me underwater, the deal has too little margin for error. Vacancy is only one of the inputs worth flexing this way, and sensitivity analysis for real estate deals covers the rest.

Running Your Own Numbers

Vacancy is one variable in a larger analysis, but it's one that deserves more attention than most investors give it. Before you finalize any deal, make sure you've researched actual vacancy conditions in your target market and stress tested your assumptions.

The single-family rental calculator lets you adjust vacancy rates and instantly see how changes affect your cash flow, cash-on-cash return, and other key metrics. Try running your deal at several vacancy levels to understand how sensitive your returns are to this assumption.