How do I calculate a vacancy rate?

Divide the number of vacant units, or the amount of vacant time, by the total units or total time in the period, then multiply by 100 to express it as a percentage.

What vacancy rate should I use in projections?

Use a realistic figure based on local market data and the property's own history. Assuming zero vacancy overstates income; a modest allowance keeps your numbers conservative and credible.

Does vacancy affect my mortgage application?

Indirectly, yes. Higher vacancy lowers effective rental income, which lenders use when assessing an investment property. Realistic vacancy assumptions help your application hold up to a lender's review.

Mortgage Glossary

What is Vacancy Rate?

The vacancy rate is the percentage of a rental property's units, or its rentable time, that sits unoccupied over a period. It is calculated as vacant units or vacant time divided by the total, expressed as a percentage. A higher vacancy rate means more lost rent, which directly reduces a property's income and return.

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Quick answer

Also known as: vacancy, vacancy allowance

Key points

Vacancy rate is vacant units or time divided by the total, as a percentage.
It reduces effective rental income below the full-occupancy figure.
A vacancy allowance makes income projections realistic.
Vacancy feeds directly into NOI and cap rate.
Lenders apply conservative vacancy assumptions when assessing rental income.

Vacancy Rate explained

Vacancy rate can be measured by units, dividing vacant units by total units, or by time, dividing vacant days or months by the total in the period. For a single-unit rental, it usually reflects the share of the year the unit is empty between tenants. Investors fold an expected vacancy allowance into their projections so that income estimates are realistic rather than assuming full occupancy year-round.

In Canada, market vacancy rates are tracked by area and published by housing agencies, and they influence rents and how easily units fill. A property's own vacancy experience may differ. Because vacancy reduces effective income, it feeds directly into net operating income, cap rate, and how confidently a lender views projected rental income.

What a Vacancy Rate is for

Vacancy rate exists to capture the reality that rentals are not always occupied. Building a vacancy allowance into projections prevents investors from overstating income and helps them plan for the gaps between tenants, turnover costs, and slower rental periods.

How it can help you

Accounting for vacancy helps you set realistic income expectations and avoid overpaying for a property based on best-case rent. Lenders also apply their own conservative assumptions, so understanding vacancy keeps your numbers credible. Lenderoo shops 40+ lenders for free, helping you qualify for an investment-property mortgage with projections that hold up to scrutiny.

When it comes up

Vacancy rate matters when an investor projects income on a small apartment building. By applying a realistic vacancy allowance instead of assuming full occupancy, they get a truer net operating income, which supports a sound purchase decision and a credible financing application.

Example: applying a vacancy rate

An eight-unit building has full annual rent of $96,000 if every unit is occupied all year. Over the past year, the equivalent of one unit sat empty for six months, which is 6 unit-months out of 96 total unit-months, a vacancy rate of about 6.25%.

Applying that rate, expected lost rent is roughly $6,000, leaving effective rental income near $90,000. Using $90,000 instead of $96,000 gives a more realistic base for calculating NOI and cap rate, and a lender will expect that kind of allowance.