How Vacancy Rate Affects Your Rental Property Returns

Last updated July 2, 2026

Vacancy is the most consistently underestimated cost in rental property underwriting. A property that generates $2,000 per month in rent at full occupancy produces $24,000 per year at 100 percent occupancy. At a more realistic 8 percent vacancy rate — roughly one month vacant per year — actual collected rent drops to $22,080. At a 10 percent vacancy rate, the annual income is $21,600. The difference between assuming zero vacancy and modeling a realistic rate can change a property's cash-on-cash return by 1 to 2 full percentage points, the difference between a deal that works and one that does not.

Vacancy rates vary by market, property type, and location within a market. The Census Bureau's rental vacancy rate for the U.S. was 6.6 percent in Q1 2026, but this national figure masks enormous local variation. Tight urban markets with limited supply can see vacancy rates below 3 percent. Some rural or oversupplied markets run 12 to 18 percent. Single-family rentals generally have lower vacancy rates than multifamily because tenant turnover is less frequent, but individual vacancy events are more impactful — a vacant single-family home produces zero income, while a vacant unit in a 10-unit building reduces income by 10 percent. Underwriting should use local historical vacancy data, not the national average or the optimistic assumption of a perpetually occupied property.

Modeling rental property returns at both a base-case vacancy rate based on local market data and a stress-case rate 3 to 5 percentage points higher. A deal that only works at zero or minimal vacancy is a deal with insufficient margin of safety. The properties worth owning generate positive cash flow even when occupancy is below the expected level.