What Are Ideal Vacancy Rates for Investment Properties? | Des Moines

Posted by Jan Wieder   |   May 4, 2021

It’s no secret that once you’ve purchased investment properties in Seattle and got them ready for business, you want to see them populated with tenants. Every day or week that your property sits empty is time when you are not making a profit.

There are occasional reasons for wanting or needing to have your properties vacant—such as when you are doing major renovations or cleaning up the space in between tenants. However, in general, landlords in Seattle should strive to implement a variety of strategies to achieve a desirable vacancy rate that directly and positively impacts your long-term return on investment (ROI).

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How Do You Calculate a Vacancy Rate in Seattle?

In the real estate world, the vacancy rate is one of the most important metrics you will deal with. It helps you gauge the productivity of your investment properties in Seattle, especially in comparison to the average vacancy rate of other rental properties in the area, but it is useful for other situations as well.

A vacancy rate is defined, in simple terms, as the percentage of units in a commercial or residential property that sits vacant over a period of time. It is the direct opposite of an occupancy rate, and it is most applicable to large investment properties with multiple units, such as apartment buildings, large business complexes and even hotels.

You can calculate the vacancy rate of a given property using a relatively straightforward formula. First, multiply the number of vacant units by 100, then divide the product by your total number of units. For example, if your apartment complex has 50 units and four of them are empty, your vacancy rate is 8 percent.

Based on this metric, you will be better informed to make decisions about marketing, advertising and setting a reasonable yet profitable rental rate for incoming tenants. Additionally, it will give you insight as you’re calculating other consequential figures as part of your real estate investing endeavor, including the net operating income of each of your properties, your cash flow, and an accurate capitalization rate.

It can get a bit trickier with a single-family residence, or even a property that only houses two or three tenants. Anytime the home sits empty, you suddenly go from a 100 percent vacancy rate to a 0 percent vacancy rate. So, while it’s still helpful to track this information for your single- or multi-family properties, you should plan to analyze and apply the data differently.


What is a Good Vacancy Rate in Seattle?

As is obvious, you want to achieve a low vacancy rate, as that is an indicator that your Seattle property is renting well and consistently. However, keeping your apartment units, commercial properties or single-family homes occupied at all times is impossible. So, the question is, what is considered a good vacancy rate? The answer varies by region based on a variety of factors, including the condition of the local housing market and the type of rental property you own.

The average vacancy rate for rental properties that consist of five units or more, such as apartment buildings, is about 4.7 percent. Multifamily properties and single-family properties have an average vacancy rate of about 5 percent. Meanwhile, it’s not uncommon for the vacancy rate of vacation rental properties and short-term rentals to be closer to 30 percent to 45 percent.

However, Washington State—and the Seattle metro area, in particular—is a unique situation. Because of the high demand for housing of all kinds in this region, as well as the impact of the coronavirus pandemic in the past year and the widespread decrease of rental rates, Washington has one of the lowest average rental vacancy rates in the country. In the fourth quarter of 2020, it was approximately 3.8 percent—down from 5.4 percent during the same quarter in 2019—with nearly 37.4 percent of households renting rather than owning their properties. Most communities in the South Puget Sound area, including Seattle, Burien, and Federal Way, tend to have comparatively low vacancy rates or about 2 percent to 4 percent. Being aware of these numbers can help you accurately assess the value of your real estate investments, whether they be commercial or residential.

Some factors that impact the vacancy rate of your properties in Seattle are beyond your control. For example, local amenities and proximity to public transportation can make an entire area more or less desirable. An over-saturated real estate market, limited job market, economic downturn, and low-income workforce also affect the rate at which your properties remain occupied. That’s why you should do your best to compare your vacancy rate to that of other apartment buildings or rental properties in the specific neighborhood or community where it resides.

However, there are measures you can take to help improve the vacancy rate of your rental properties in Seattle. If your building is outdated, in need of repairs, or lacking in onsite amenities, it won’t be as appealing to prospective tenants, which can negatively impact your vacancy rate. Finding ways to keep your tenants happy, on the other hand, will likely improve your vacancy rate. Additionally, how you market and advertise the property, as well as the rental rates and other fees you set, can also play a part.


Improving Your Vacancy Rate in Seattle

As a real estate investor or landlord, calculating the vacancy rate of property you own, or even one you want to acquire, gives you an indicator to use when making decisions about purchasing or keeping the building, the appropriate rental rate to set, and other important issues. This is one area where your Seattle property manager can provide essential assistance. At Powell Property Management, we have the experience and local knowledge to help you calculate and properly apply vacancy rates. In addition to tenant acquisition services, our team can also provide professional consulting, conduct market research to determine ideal rental rates for a particular neighborhood, get your properties rent-ready and handle marketing and advertising to reach your target audience. Give us a call today at (206) 824-3733!

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Topics: Real Estate Investing 101