When you think about rental property expenses, things like maintenance, management fees and mortgages are probably what come to mind.
But there’s one item you may not find when Googling typical costs associated with owning rental real estate.
Now, you can argue that vacancy isn’t an expense per se. It doesn’t show up as a line item on your Profit & Loss statement, but it does have an impact on your income, and is what we’ve called time and time again a “cash flow killer.”
We always advise our Central Indiana Investors to consider vacancy as an associated cost of owning a rental property and to budget accordingly. A general rule of thumb is to expect your property to be vacant for at least one month out of the year or, at a minimum, 8%. Most industry experts will argue that 10% is a better number.
Fortunately, vacancy is currently at a cyclical low nationally, and Indianapolis is set to see a vacancy rate of 6.9%, which is down 70 basis points from 2016 according to homeunion.com.
Even though single family home vacancy rates are on the decline, it’s critical to be prepared for when your property sits vacant longer than you anticipated.