Occupancy Rate

Occupancy rate is the proportion of a property that is rented. For a building with many units, it is occupied units divided by total units: 46 of 50 flats let is 92%. For a single-family house it is measured across time: rented for 11 of 12 months is 92%. Economic occupancy is the stricter version, counting only tenants who are actually paying. A unit with a tenant three months behind is physically occupied and economically vacant. The rent a property collects follows economic occupancy, so that is the one that matters for yield.

Sponsors model occupancy when they project a yield, and the number they choose is doing a lot of quiet work. Single-family rentals in strong markets run 93 to 96% over time, allowing for a few weeks of turnover between tenants. Multi-family averages 92 to 95%. Short-term rentals swing between 50 and 80% with the season. A listing that assumes 100% is assuming no tenant ever leaves. One that assumes 95% on a house with a tenant already in place is reasonable. One that assumes 95% on a vacant house that has not been let yet is assuming the hardest part is done.

Take a house renting for $2,000 a month with $700 of monthly costs, distributing $1,300 to investors. One vacant month costs $2,000 of rent, but the costs still run, so the distribution that month is minus $700. Across the year, a single vacancy turns $15,600 of distributions into $13,600, a 13% cut in the yield from a 92% occupancy rate. This is why occupancy is the first thing to check on a stabilised property's updates and the first assumption to challenge on a new listing. On Threeworld, where a platform reports occupancy, it appears with the listing. If a listing shows a yield without an occupancy figure, the offering document will have the assumption behind it.