Rental Vacancy Impact Calculator (NOI, Cap Rate & Breakeven Occupancy)

Vacancy is the assumption that quietly decides whether a rental works, and it is the one most often set to zero.

One month empty a year is 8.3% vacancy. Turnover is not a risk, it is a certainty: tenants move, units need cleaning and re-letting, and a property is rarely occupied every single day for years. Underwriting at 0% is not optimism, it is an error.

The gap it creates is large. Here, assuming no vacancy inflates NOI by $2,304 and the cap rate by 0.77 percentage points -- enough to turn a marginal deal into an apparently good one.

Breakeven occupancy is the more honest test. At 92.08%, this property needs to be occupied all but one month a year to cover its operating costs and mortgage. That is a very thin margin.

Note that mortgage payments are not operating expenses. NOI is deliberately debt-free so properties can be compared regardless of financing.

Each percentage point of vacancy costs exactly 1% of gross rent -- here $288 a year.

$300,000 price, $2,400 rent, 8% vacancy, $11,520 expenses, $15,000 debt service:

• Gross annual rent: $28,800
• Vacancy loss: 8% × $28,800 = $2,304
• Effective gross income: $26,496
• NOI: $26,496 − $11,520 = $14,976
• Cap rate: 4.99%
• Cash flow after debt service: −$24. Essentially breakeven, and negative.
• Breakeven occupancy: ($11,520 + $15,000) ÷ $28,800 = 92.08%

Assuming zero vacancy: NOI shows $17,280 and the cap rate 5.76%. Nothing about the property changed; only the assumption did.

At 16% vacancy (two months empty): NOI falls to $12,672 and cash flow to −$2,328. A single bad year costs over two thousand dollars.

Owned outright, no mortgage: breakeven occupancy drops to 40.00%, because only operating expenses need covering. Leverage is what makes the occupancy requirement punishing.

• Turnover costs beyond lost rent. Cleaning, painting, repairs and letting fees all arrive alongside a vacancy and are not captured by the vacancy rate alone.
• Rent growth and expense inflation, which move in different directions over a hold period.
• Capital expenditure. Roofs, boilers and windows are not operating expenses but they are real, and reserves for them should be in the expense figure.
• Bad debt. A tenant who stays but stops paying is worse than a vacancy, and is not the same line item.
• Seasonality. Family rentals turn over in summer; student lets have fixed cycles that concentrate vacancy risk.
• Tax. Depreciation, mortgage interest deductibility and eventual recapture all change the after-tax picture materially.
• Appreciation. This is an income measure. Total return includes value growth, which for many investors dominates.
• Financing terms. Debt service is taken as given; the split between principal and interest is not modelled here.

• Underwriting at zero vacancy. The single most common error in amateur rental analysis. It inflates the cap rate here by 0.77 points, which is the difference between a marginal deal and an attractive one.
• Putting mortgage payments in operating expenses. NOI excludes debt deliberately, so that properties can be compared independently of how they are financed. Including it makes your cap rate meaningless.
• Forgetting capital reserves. A property with no reserve line is not cheaper to run, it is being underfunded. Roofs fail on a schedule you do not control.
• Ignoring breakeven occupancy. A 5% cap rate sounds fine until you notice the property needs 92% occupancy to break even, which leaves almost no margin.
• Treating the vacancy rate as the whole cost of turnover. Lost rent is only part of it. Re-letting costs arrive at the same moment.
• Using market vacancy for your specific unit. A neighbourhood average tells you little about a particular property with a particular manager.

• Standard real estate income analysis. Net operating income, cap rate, effective gross income and breakeven occupancy are conventional definitions with no jurisdictional content.
• The convention that NOI excludes debt service, so that properties can be compared independently of financing, is applied throughout.