Vacancy rate

The share of potential rent lost to periods when a property stands empty, usually combined with an allowance for arrears.

Example

One void month in twelve is 8.3%; a weaker letting market carrying 15.0% removes 2,700 from 18,000 of gross rent before any other deduction.

Important

Set it from the letting history rather than the current tenancy. Every tenancy ends, and a building that turns over quickly also pays a re-letting fee and a void period each time.

Related terms

• Gross rental yield — Annual rent divided by price, before any cost is deducted. The figure quoted on almost every property listing aimed at investors.
• Net operating income — Rent or trading income after every cost of running the asset except financing - management, maintenance, insurance, tax and an allowance for periods standing empty.
• Net rental yield — Net operating income divided by price - rent after vacancy, management, maintenance, insurance, local property tax and any service charge, but before financing.

Lessons that explain it

• Gross yield is not a yield — Rent divided by price is the number every listing quotes and no owner receives. Take the five deductions out and Property P's 8.00% becomes 4.264% - and the two halves of the return turn out to be far less connected than they sound. (12 min)
• Appraising one property: the numbers, the condition, the tenant and the exit — Seven checks on one specific building. The two that decide most outcomes - the deduction list and whether the income covers the borrowing - are the two that never appear in a listing. (14 min)

All 578 terms in the Investing glossary