Vacancy Rate and Occupancy Rate are 2 very basic and important concepts of Real Estate. They are important for a Real Estate Agent to understand the market conditions and gauge the direction of real estate in near future. It is also important for licensing aspirants who are planning to become Real Estate Agents in future to understand the each of small concepts in detail and serve their clients in their future real estate journey.
It is imperative that you understand the concepts clearly and make accurate and correct calculations when finding the vacancy and occupancy ratios of a market. Using the wrong rates can negatively affect the financial performance of a rental property as well as the market value.
Note: The topic of Vacancy Rate is covered under the Fundamentals of Real Estate Course as well as the Commercial Real Estate Course by RECA. So, prioritize this topic accordingly.
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Let’s have a look at the Terms and Formula for each of the topics:
VACANCY RATE
Definition:
The Vacancy Rate is the percentage of all available (vacant) units in a rental property. These units are not occupied by any tenant as of current day and remain vacant i.e., available to rent or get occupied by future tenants or occupants.
Formula:
When calculating the Vacancy Rate of any given area or property, you must first find out the Vacancy Value of the given area and then multiply it with 100. Vacancy Rate is actually the percentage of the total number of vacant units from the overall number of units of any given property. This can be presented as –
Sample Exam Question
Question: An apartment building has 400 units out of which 220 are occupied. Calculate the Vacancy Rate?
Solution:
OCCUPANCY RATE
Definition: The Occupancy Rate is the percentage of all occupied (non-vacant or rented) units in a rental property. These units are occupied by tenants as of current day and are counted as properties that are help in revenue generation for that current period.
Formula:
When calculating the Occupancy Rate of any given area or property, you must first find out the Occupancy Value of the given area and then multiply it with 100. Occupancy Rate is again, the percentage of the total number of vacant units from the overall number of units of any given property. This can be presented as –
Sample Exam Question
Question: An apartment building has 200 units out of which 120 are available for rent. Calculate the Occupancy Rate?
Solution:
Additional Tips
- Vacancy Rate and Occupancy Rate are inter-related to each other. At any given point of time, Vacancy Rate is the opposite of Occupancy Rate. For example, if any property has 30% Vacancy Rate, then it means that the remaining 70% is the Occupancy Rate.
- It’s tempting to use the market average when calculating Vacancy Rate and Occupancy Rate in Real Estate for a property pro forma. But the fact is that Vacancy Rates and Occupancy Rates vary from market to market, and even from neighborhood to neighborhood.
- Vacancy Rates and Occupancy Rates only resonates the Rental Properties or Market of a particular place. It doesn’t denote the Ownership segment of the Real Estate Market.
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