#322: What "5% Vacancy" Actually Means In Terms of Renewal Rates + Time To Turn Units... Most Investors Never Do This Analysis!

This solo episode of The Multifamily Wealth Podcast dives into the operational realities behind vacancy rate assumptions in multifamily real estate investing. Hosted by a seasoned multifamily expert, the episode reveals that the commonly used 5% vacancy rate is not arbitrary—it's the result of specific operational metrics like renewal rates and turnover timelines. Using a 10-unit building as a model, the host walks through how a 50% renewal rate with a 4-week turnover time leads to approximately 4% physical vacancy, which, when combined with 1% economic delinquency, results in the standard 5% assumption. The analysis shows that even small changes—like improving renewal rates from 50% to 60% or reducing turnover time from 4 to 3 weeks—can dramatically lower vacancy to 2%, while poor performance (40% renewal, 5-week turnover) can push vacancy to 6%. These differences have massive financial implications, as revenue growth in multifamily directly impacts NOI, cash on cash returns, and asset value. The episode emphasizes that investors should stop using default vacancy assumptions and instead model their own operational performance to underwrite deals more accurately. Key takeaways include: (1) Your vacancy rate assumption should be driven by your actual renewal rate and turnover speed—not industry averages; (2) A 4% difference in vacancy (e.g., 2% vs. 6%) can make or break a deal due to the direct impact on NOI; (3) Improving renewal rates and reducing turnover time are among the most impactful levers for increasing property value. The host encourages listeners to audit their own operations and adjust underwriting assumptions accordingly, positioning this as a foundational skill for serious multifamily investors.