Occupancy is the share of your units producing rent; vacancy is the rent you're not collecting. For a small portfolio, a single empty unit can be the difference between a profitable year and a loss, so this is the operating metric to watch weekly, not annually.
Measuring it honestly
Physical occupancy = occupied units ÷ total units. Economic occupancy = rent actually collected ÷ gross potential rent, which also catches concessions, delinquency, and units rented below market. A building can be 100% physically occupied and 90% economically occupied — the second number is the one your bank account feels.
What a vacant unit really costs
An empty unit costs its rent, plus turnover costs: cleaning, paint, marketing, and your time. A $1,500/month unit vacant for two months plus $1,800 in turnover costs is a $4,800 hit — roughly 27% of that unit's annual rent. This is why a $50 rent premium that adds two weeks of vacancy usually loses money.
Healthy targets
Stabilized US residential rentals typically run 92–97% physical occupancy, which is why underwriting commonly carries a 5–8% vacancy allowance. Persistent 100% occupancy usually means rents are below market; occupancy below 90% with normal market conditions points to pricing, condition, or management problems.
Worked example
A 6-unit building has gross potential rent of $9,000/month ($108,000/year). One unit sat vacant for 3 months ($4,500 lost) and one tenant received a half-month concession ($750). Collected rent: $102,750. Economic occupancy = $102,750 ÷ $108,000 = 95.1% — healthy, but the vacant unit alone consumed most of the year's vacancy budget.
When this rule of thumb breaks
Occupancy targets assume stabilized operations. During a renovation or repositioning, low occupancy is the plan, not a problem. In seasonal or student markets, annual averages hide predictable cycles — measure against the same season last year. And on very small portfolios the metric is lumpy: a duplex is either 100%, 50%, or 0% occupied, so track vacant days per unit per year instead of a percentage.