How to use the vacancy rate loss calculator
A cap rate quoted on a listing almost always assumes the rent arrives every month of the year. Two empty months change that picture noticeably, and the damage is doubled because property tax, insurance, common area maintenance and base utilities revert to the owner the moment a tenant leaves.
The vacancy rate here is time based: vacant months divided by the 12 months in a year. Area-based vacancy, where only some suites in a multi-tenant building are empty, is not modeled. Rent not collected is the monthly rent times the vacant months, and carry cost is the monthly owner-paid cost times the same vacant months. Adding the two gives total vacancy loss.
Gross yield uses annual rent divided by the purchase price, the same denominator as the commercial cap rate calculator, and it is shown twice: once at full occupancy and once after vacancy. Leasing commissions, tenant improvement allowances, free rent periods and mortgage interest are not included, so add those separately when you underwrite a deal.
Frequently asked questions
On time. It divides the number of vacant months by the 12 months in a year. Area-based vacancy, where only part of a multi-tenant building is empty, is not calculated here.
Property tax, insurance, common area maintenance and base utilities usually revert to the owner when there is no tenant. Enter that monthly carry cost and it is multiplied by the vacant months and added to the loss.
Annual rent divided by the purchase price, the same definition used in the commercial cap rate calculator. Both the full-occupancy and vacancy-adjusted figures use that same denominator, so the two tools line up.