Excellent channel. Thank you!! Also, I think it is worth considering vacancy rates, and location in which the units are situated in terms of the local economy and legislation.
Hey Justin, thanks for this video. I've got a question regarding MF vacancy that I am hoping to get your thoughts on. When UW vacancy on a MF deal, how do you account for the difference in the impact to vacancy between a 1-bed unit vs a 2-bed or 3-bed unit being vacant? For example, let's say we have a 100-unit property with 10 vacant units (10% physical vacancy). Now let's say all the vacant units are 1-bed's @ $1,000 a unit, so $10,000 total vacancy. Gross Lease Revenue is $150,000 in a property with a mix of 1-bed, 2-bed and 3-bed units. If we were to apply a vacancy of 10% to GLR (using our physical vacancy number), we would get $15,000 for vacancy, which obviously is above the $10,000 actual vacancy we calculated above since the property's vacancy is 100% concentrated in 1-bed units. In this situation, would you use the $10,000 vacancy or the $15,000? My question is based on models that are built by generating an assumed GLR number and applying the assumed vacancy rate, but based on the illustration above, we could either be applying too punitive or too little of a vacancy number depending on whether vacancy is concentrated in higher or lower income generating units (i.e. 1 bed vs 3-bed units).
