How should landlords think about property vacancy?

Tenant vacancy is a huge cost to any landlord, whether in Washington, DC or any other city. Think of it this way: with 52 weeks of rent in one full-year lease, every week of vacancy costs a landlord about 1.9% of the annual rent value.

If that doesn't seem like a lot, treating property vacancy like a finance charge (think credit card APR) helps underscore the huge cost to not renting a unit as quickly as possible. Let's run a few numbers to demonstrate the point (keep in mind this is a rough illustration).

The median DC rental listing price is now approximately $2,572 (via Zillow data). The median DC home value is approximately $518,800. The median DC rental unit yields $30,864 in annual rent revenue, if fully occupied. Let's make another assumption to highlight the corrosive effect of vacancy. Conventional mortgages typically require 20% down payments by property owners; for the median DC property that would equal $103,760.

Thus in this example, a landlord borrows $103,760 in order to secure $30,864 in annual rent revenue. Daily vacancy on that particular unit has the equivalent effect of a 29.7% APR finance charge! The effect of vacancy is even more pronounced if you consider that landlords with mortgages have to use proceeds from rent to help pay principal, interest, and taxes, which obviously can't be done if no rent is collected (and which explains why return on investment (ROI) is lower than our calculated vacancy finance charge).

One week of vacancy in the median DC rental unit costs landlords on average $591.91 per week - and that's money that has absolutely zero economic value and no rate of return. A property manager that fails to rapidly lease a rental unit, or a landlord not working with 100% effort to find a new tenant, is expensive.