Quick answer
When a seller hands you a pro forma, the vacancy assumption is almost always wrong. Not because sellers are dishonest — though some are — but because pro formas are built to support an asking price, not to stress-test a deal.
The question is not "what is vacancy?" It is "can I independently verify every line in this pro forma before I offer?" This article walks you through how.
Why the seller's pro forma is not your pro forma
A pro forma is a projection. Sellers use the inputs that make the deal look most attractive:
- Optimistic rent (sometimes the current tenant pays above market)
- Minimal vacancy (3% or 0% because "it's always been rented")
- Missing expenses (no management, no reserves, no leasing cost)
- Understated taxes (pre-sale assessment, not post-sale)
The result is a pro forma that shows strong returns — on paper. Your job is to rebuild it from your own independent data. If your numbers match the seller's, great. If they don't, you know before you make an offer.
Step 1: Verify the rent with real comps
Do not use the seller's stated rent as your income assumption. Look up what comparable properties are actually listing and leasing for today.
How to find rental comps
| Source | What you get |
|---|---|
| Zillow / Apartments.com / Rentometer | Active listing rents for comparable units |
| Your local property manager | Recently signed lease rents (closer to actual) |
| MLS rental data (via agent) | Closed lease comps with verified rent |
| Census American Community Survey | Median gross rent by geography |
What makes a valid rental comp
Match to your subject on: bedroom count, square footage (±15%), condition, neighborhood, and proximity (0.5–1 mile max in urban areas). A renovated three-bedroom in the same submarket is a valid comp. A larger, renovated property two miles away is not.
Action: Find three to five comparable active rental listings within one mile. Record each rent and the date. Use the midpoint of that range — not the high — as your income assumption.
Step 2: Set your vacancy assumption independently
Once you have market rent, you need a vacancy assumption that reflects this specific property in this specific market — not a number copied from the seller's pro forma.
Where to find market vacancy data
| Source | Data type | Access |
|---|---|---|
| Census Bureau ACS (B25004) | Rental vacancy rate by geography | Free at census.gov |
| HUD Comprehensive Housing Market Analysis | Metro-level vacancy trends | Free |
| Local property manager | Submarket operating experience | Ask directly |
| CoStar / CBRE market reports | Institutional-grade vacancy data | Paid |
See How to Use Census Data Before Buying a Rental Property for a walkthrough of pulling census vacancy data by ZIP code.
Adjusting for property-specific risk
Census vacancy is a market average. Your property may perform better or worse depending on:
| Factor | Direction |
|---|---|
| Strong condition, well-priced rent | Below market vacancy |
| Below-average condition or overpriced | Above market vacancy |
| Pending tenant turnover or vacancy at purchase | Model the lease-up period separately |
| Recent renovation or repositioning | Higher vacancy during transition |
| Close to employment, transit, or schools | Below market vacancy |
Action: Start with the census vacancy rate for your ZIP code. Then apply a plus or minus adjustment based on property-specific factors. Document your reasoning so you can defend it if the deal is questioned later.
Step 3: Rebuild the expense stack
The most common places sellers understate expenses:
Property management
If you plan to self-manage, include it anyway at 8–10% of gross rent. It makes the model honest and protects you if you need to hire out. Self-managing from a distance without this line is how investors end up working for free.
Capital reserves
Budget 5–10% of gross rent. This is not optional. Roofs, HVAC, water heaters, appliances — they all fail eventually. If you do not budget for it, every major repair becomes a crisis.
Leasing and turnover
Every tenant eventually leaves. When they do, you typically lose rent during turnover (1–4 weeks), spend on cleaning and repairs (variable), and pay a leasing fee if using a manager (often one month's rent). Model this as part of your effective vacancy allowance or as a separate line.
Property taxes (post-sale)
Many markets reassess at sale. The seller's tax bill is not your tax bill. Contact the county assessor or use their online calculator to estimate what your taxes will be after closing. The difference can be $2,000–$5,000/year in some markets.
Insurance
Landlord or dwelling policy, not homeowner's insurance. Older homes, certain markets, and homes with prior claims cost more. Get a quote early — do not use the seller's number.
Step 4: Run your own pro forma
With your independent rent, vacancy, and expense numbers, rebuild the pro forma from scratch.
Example: seller's pro forma vs. independently verified numbers
| Line item | Seller's pro forma | Your independent numbers |
|---|---|---|
| Monthly rent | $1,850 | $1,750 (rental comps) |
| Vacancy | 3.0% | 7.5% (census + property risk) |
| Property taxes | $2,400 | $3,100 (post-sale assessment) |
| Insurance | $800 | $1,250 (landlord policy quote) |
| Maintenance | $1,200 | $1,800 (1% of $180K property) |
| Management | $0 | $2,100 (10% of collected rent) |
| Capital reserves | $0 | $1,050 (5% of rent) |
| NOI | $15,326 | $9,244 |
| Cap rate (at $200,000 price) | 7.7% | 4.6% |
That is the same property, the same price, with two different levels of underwriting rigor. The 4.6% cap rate may still be acceptable depending on the market — but you need to know the real number before deciding.
Step 5: Sensitivity test before offering
Now that you have a realistic base case, test what happens when things go wrong:
| Input | Base case | Stress case |
|---|---|---|
| Monthly rent | $1,750 | $1,650 (5.7% below market) |
| Vacancy | 7.5% | 12.5% (1 extra month vacant/year) |
| Maintenance | $1,800 | $2,800 (older property, one surprise) |
Then ask:
- Does the deal still cash flow in the stress case?
- Does DSCR still clear your lender's minimum?
- Does cash-on-cash return still justify the risk and capital tie-up?
- If it is a BRRRR deal, does post-refinance cash flow still work after a refinance at the lower stabilized rent?
- Can you survive the stress case for a full year without needing to sell?
The vacancy number to watch in pro formas
Most pro forma problems trace back to one of three bad vacancy assumptions:
| Bad assumption | What it looks like | What it hides |
|---|---|---|
| 0% vacancy | "Currently occupied" | Turnover, leasing time, nonpayment |
| 3% vacancy | "Industry standard" | Market vacancy is often 6–10%; no property-specific analysis |
| No lease-up period | Immediate occupancy modeled | Post-renovation lease-up can take 30–90 days |
In all three cases, the fix is the same: replace the assumption with data you independently sourced.
What Temelios can verify
FAQ
How do I get a seller to accept my lower vacancy assumption?
You do not need to negotiate the vacancy assumption directly. You negotiate the price. Your verified pro forma gives you a defensible ceiling: "At my numbers, the deal works at $X." The seller either agrees or does not. Your job is to make an offer that works at honest inputs.
Should I use a property manager's vacancy estimate or census data?
Both when possible. Census data gives you a market-level baseline. A property manager adds current operating experience from the specific submarket. When they disagree, find out why — sometimes the census data lags current market conditions, and sometimes the property manager is optimistic to win your business.
What vacancy rate should I use for a newly renovated property being leased for the first time?
Model a lease-up period (30–60 days is common) separately from your stabilized vacancy assumption. During lease-up, rent may be zero or partial. After stabilization, use your market-supported vacancy rate. Blending both into one flat percentage understates risk.
Does vacancy affect my ability to refinance a BRRRR property?
Yes — many lenders require three to six months of rental history before a cash-out refinance. If lease-up takes longer than expected, your refinance timeline extends, your hard money interest keeps accumulating, and your overall deal cost increases. Model the lease-up period explicitly in any BRRRR analysis.