What Happens to Your Income When a Unit Goes Vacant? Testing Vacancy Risk With Numbers
The yield printed in an investment property brochure is usually calculated as if every unit stays occupied and rent never stops. In reality tenants move out and new ones move in, and no rent arrives in between.
This article works through one example to show how much a single vacancy can change your annual income, then outlines the lease rules involved and ways to reduce vacancy. The figures are illustrative assumptions and will differ by property and contract.
How often do vacancies happen?
Vacancy frequency varies widely with area, distance to the station, floor plan and building age. Units for single tenants tend to turn over more often, while family units are often said to stay occupied longer, but that is only a general tendency.
Before buying, ask the seller or management company for several years of tenancy history (length of stay and vacant periods) so you can tell whether today’s full occupancy is a lucky snapshot.
Assumptions for the example (illustrative)
- Monthly rent
- 100,000JPY
- Vacancy per year
- 2months
- Rent kept vs. full occupancy
- 62.5%
A single condo unit
From move-out to next move-in
From the table below
How much do you keep after vacancy, advertising and restoration costs?
A vacancy costs more than the months without rent. You may also pay an advertising fee to find the next tenant (often around one month of rent, as a rough guide) and restoration costs after move-out.
The table assumes monthly rent of JPY 100,000, two vacant months, one month of rent as an advertising fee and JPY 150,000 for restoration. Management fees, reserve fund contributions, taxes and loan payments are not included.
Annual rental income example (assumptions)
| Item | Amount | Note |
|---|---|---|
| Annual rent at full occupancy | JPY 1,200,000 | JPY 100,000 × 12 months |
| Two vacant months | −JPY 200,000 | Months with no rent |
| Advertising fee (assumed 1 month) | −JPY 100,000 | Depends on leasing terms |
| Restoration cost (assumed) | −JPY 150,000 | Depends on wear and tear |
| Rental income you keep | JPY 750,000 | 62.5% of the full-occupancy figure |
The same unit looks like JPY 1,200,000 a year with no vacancy and JPY 750,000 after one vacancy. Comparing gross yields alone hides this gap.
How do lease rules affect vacancy risk?
Vacancy risk is not only about when tenants leave; it also depends on whether the landlord can end a lease. Under an ordinary lease, a landlord’s refusal to renew or termination is legally restricted, so replacing a tenant, for example to reset the rent, is not always possible.
Provisions worth knowing (Act on Land and Building Leases)
- Act on Land and Building Leases, Art. 26
- For a fixed-term building lease, if no notice of non-renewal is given between one year and six months before expiry, the lease is generally deemed renewed on the same terms.
- Act on Land and Building Leases, Art. 28
- A landlord’s refusal to renew or notice of termination requires a “justifiable reason”; offering compensation for moving out can be one factor considered.
- Act on Land and Building Leases, Art. 38
- Sets out fixed-term building leases (with no renewal), for which explanation and document requirements must be met at the start.
How can you reduce vacancy and soften its impact?
Think of it in two parts: attracting tenants, and surviving vacancies when they happen. The first depends on terms, equipment and your management company’s leasing strength; the second on a budget that assumes longer vacancies plus a cash reserve.
Common oversights and fixes
✕Yield was calculated at full occupancy, and loan payments became hard to cover at the first vacancy.
→Before buying, model income with about two to three vacant months a year and check that cash flow stays positive after repayments.
✕The management company’s leasing efforts were never checked and the vacancy dragged on.
→Ask for regular reports on listing channels, viewings and proposals to adjust terms.
✕Lease expiries were concentrated in the same month.
→Check each unit’s expiry date in the rent roll and set aside funds for months when renewals and move-outs overlap.
Pre-purchase vacancy checklist
- I checked roughly three years of tenancy and vacancy history
- I checked each unit’s lease expiry date in the rent roll
- I modeled income with two to three vacant months a year
- I confirmed who pays advertising and restoration costs with the management company
- I decided how much cash to hold to cover repayments during vacancies
- I checked nearby asking rents and listing periods on property portals
FAQ
- Q. What vacancy rate should I assume?
- A. There is no single right answer; it differs by area and property type. A common conservative approach is to assume roughly one to three vacant months per year.
- Q. Will cutting the rent fill a vacancy quickly?
- A. It can help, but the size of the cut must be balanced against income. It is usually considered together with local market rents and the unit’s equipment.
- Q. Does a fixed-term lease reduce vacancy risk?
- A. It gives a clear end date, but with no renewal you must re-let or re-market the unit, and some tenants may avoid such leases. Weigh the terms as a whole.
In the SUMIMOTO Hub app, a 24-hour AI advisor explains how to think about yields and lease basics in multiple languages. For individual contracts and taxes, please also consult qualified professionals such as a licensed real estate agent or tax accountant.
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