Vacancy Loss Reserve

I don’t care if a multifamily property is currently 100% occupied; expect vacancy. Los Angeles averages 3-5% vacancy rate. When a tenant turns over, the unit needs to be cleaned and painted. Leasing the unit could take a few days, a few weeks, or a few months. Have a problem tenant on your hands that you will need to evict? That will cause vacancy loss. Vacancy Reserve accounts for this loss of income. Estimate vacancy reserve as 3%-5% of gross income.

Example:

100-unit building, 5 units are vacant for the year, while the other 95 are continuously rented. Each unit produces $500/mo. in income.

5 units/100 units = 5% Vacancy Rate

5 units x $500/mo. rent x 12 months = $30,000 Vacancy Loss

The USC Lusk Center produces an annual report called the USC Casden Multifamily forecast that publishes occupancy rates for Los Angeles.

The Los Angeles Business Journal Publishes Gross Occupancy Statistics (95% Gross Occupancy means 5% vacancy rate) as well as other apartment building stats in its “ECONOWatch”

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