Vacancy Is Not 5 Percent: How to Underwrite It

Institutional investors with full-time turn crews run 3.5 percent vacancy. Here is how to rebuild the 5 percent placeholder from three real inputs.

Re:InvestorHub Team · 2026-09-10 · Deal Analysis

ATTOM released its Q3 2026 Vacant Property and Zombie Foreclosure Report on August 28, 2026, and it contains a number every rental underwriter should sit with. Of 24.9 million homes owned by institutional investors, 879,532 were vacant. That is 3.5 percent, more than double the national residential vacancy rate of 1.3 percent across all 104.6 million properties. These are the operators with dedicated turn crews, standing vendor contracts, and full-time leasing staff, and they still carry 3.5 percent. Meanwhile you typed 5 percent into your model and called it conservative. It is not conservative. It is not aggressive either. The problem is that it is not a rate at all.

What does the 5 percent vacancy assumption actually represent?

Five percent is a blended annual placeholder that stands in for three separate costs, and those three costs move independently of each other. Collapsing them into one number is what makes the assumption useless, because when one of them changes you have no way to see it.

• Days vacant. The calendar time between one tenant moving out and the next one paying. Driven by local demand, your pricing, and how fast you can turn the unit.
• Turn cost. The money you spend to make the unit rentable again: paint, cleaning, carpet, locks, listing photos, and any leasing commission. This is an expense, not lost rent, and it does not scale with your rent.
• Collection loss. Rent that is owed and never collected, plus the cost of an eviction when one happens. Driven by screening quality and local law, not by market demand.

A market with strong demand and slow turns behaves nothing like a market with weak demand and fast turns, but both can produce a 5 percent blended number. That is precisely why the blend hides the risk rather than pricing it.

Why do the pros run 3.5 percent when the country runs 1.3 percent?

Because the two numbers count different things, and the comparison is instructive rather than contradictory. The 1.3 percent national figure counts every residential property in the country, the overwhelming majority of which are owner-occupied and never turn over at all. A house someone has lived in for eleven years contributes a zero to that average. The 3.5 percent investor figure counts only properties held as rentals, which by definition cycle tenants.

The lesson is not that 3.5 percent is your number. It is that a portfolio built to turn units efficiently, at scale, with staff whose entire job is reducing days vacant, still lands at 3.5 percent. If your model assumes you will beat that with a part-time property manager and a contractor who answers texts on weekends, the assumption is doing work the operation cannot.

ATTOM chief executive Rob Barber framed the supply side of it plainly: "It remains very hard to find an empty home for prospective buyers in most regions. In 19 states, the home vacancy rate is below 1 percent, creating a bottleneck that is helping to keep prices high."

How much does vacancy vary between states?

This is the part that should end the national placeholder for good. Within that same ATTOM report, investor-owned vacancy by state ranges across nearly an order of magnitude.

• Highest investor-owned vacancy: Indiana at 7 percent, Illinois at 6.2 percent, Oklahoma at 6 percent, Kansas at 5.9 percent, and Alabama at 5.9 percent.
• Lowest investor-owned vacancy: New Hampshire at 0.9 percent, Vermont at 1 percent, Idaho at 1.3 percent, North Dakota at 1.5 percent, and New Jersey at 1.5 percent.

Indiana runs roughly eight times New Hampshire. A single 5 percent input cannot be simultaneously correct in both, and it is not close in either. In Indiana it is optimistic by two full points. In New Hampshire it is so pessimistic that it will talk you out of deals that work. The same wrong number costs you in opposite directions depending on where you buy.

How do you rebuild the vacancy line from three inputs?

Price each component separately against the submarket you are actually buying in, then add them. The arithmetic is simple once the inputs are honest.

1. Days vacant as a percentage. Take your expected days to re-lease and divide by the full cycle, meaning the average tenancy plus those vacant days. Forty-eight days vacant on a nineteen-month average tenancy is 48 divided by 626, or 7.7 percent.
2. Turn cost as a percentage. Take the cost of one turn and annualize it over the average tenancy, then divide by gross annual rent. An $1,800 turn every nineteen months is $1,137 per year.
3. Collection loss as a percentage. Start at 1 percent for well-screened tenants in a landlord-friendly jurisdiction and raise it from there based on your screening standards and local eviction timelines.

Ask your property manager for the first two directly. Average days on market for your unit type in that zip code, and average tenancy length across their portfolio, are numbers a competent manager already tracks. If they cannot produce them, that is information about the manager.

What does the rebuild do to a real deal?

Run a property renting at $1,950 per month, which is $23,400 of gross annual rent, both ways.

• At the 5 percent placeholder: $1,170 of annual vacancy loss.
• Rebuilt from the three inputs above: 7.7 percent days vacant, plus 4.9 percent annualized turn cost, plus 1 percent collection loss, for 13.5 percent total economic vacancy, or $3,164.
• The gap between the two is $1,994 per year.

Two thousand dollars a year is not a rounding error on a single rental. On a deal projecting $2,400 of annual cash flow, it removes 83 percent of the return and turns a property you would buy into one you would pass on. Notice also that the turn cost alone, at 4.9 percent, nearly equals the entire 5 percent placeholder before a single day of lost rent is counted.

How does this fit with the rest of your underwriting?

Vacancy is the occupancy line, and it is one of two places where a single optimistic assumption quietly carries an entire deal. The other is the revenue line, which we covered in your rent growth assumption is the costliest line. Those two pieces do different jobs: that one governs how fast rent rises, this one governs how much of it you actually collect. Fixing one and not the other leaves half the model running on a default.

If you want the full framework these lines sit inside, start with how to analyze a real estate deal. For choosing which markets to underwrite in the first place, the rent-to-payment ratio is a faster screen than running full numbers on properties in a metro that was never going to work.

What should you change on your next deal?

Delete the 5 percent. Replace it with three inputs you can defend, sourced from the submarket rather than a template, and keep them as three separate lines so you can see which one moves when the market changes. You will pass on some deals you would otherwise have bought. Those are the deals where the return was living in the placeholder, and finding that out during underwriting costs you nothing.