Break-Even Vacancy Factor
When a property has a number of different tenants, your risk of having a vacant property is greatly reduced. You can work out what your breakeven point vacancy factor is.
For example, if you buy a block of six units for $450,000 and each is rented for $200/week, how many can you have vacant and still cover your costs?
Let’s assume rates are $7,000/year, insurance is $1,000/year and management agent fees are 7.5%.
The first thing to work out is: What are your total costs, both fixed and variable?
Annual fixed Costs
|Interest ($450,000@ 8%)||$ 36,000|
Annual Variable Costs
Agent fees (7.5% of total rent)
Regular maintenance – we will ignore for the purpose of this exercise
If fully tenanted, the property would bring in a total rent of $62,400.
Therefore, your break-even rental point is actually 4.6. This means you could have one unit vacant all the time and another unit vacant for five months of the year and still have enough rental income to cover your costs. This has been calculated using a financial calculator.
We always recommend that you seek professional advice as this blog is for general information only