Vacancy rate measures the portion of potential income lost to empty units or turnover periods. It is subtracted from gross scheduled rent to arrive at Effective Gross Income (EGI).
EGI = Gross Rent × (1 − Vacancy Rate)
Typical vacancy assumptions by property type:
- Single-family: 5–8%
- Multifamily: 5–10%
- Short-term rental: 20–40% (seasonal)
Conservative underwriting uses 8–10% vacancy even in tight markets to buffer against unexpected turnover or economic softness. Never underwrite at 0% vacancy.