How Rental Vacancy Rates Affect DSCR Investments
Date Posted: May 29, 2025
Rental vacancy levels vary significantly across U.S. metros as local supply pipelines, population growth, and other market dynamics pull vacancy rates in different directions. In some markets, a flood of new units, ushered in during the Pandemic Boom building frenzy, has outpaced demand, pushing vacancies higher. In other markets, limited new construction and steady renter demand are keeping vacancies low and rents competitive.
Why Vacancy Rates Matter for DSCR Loans
DSCR loans—designed for financing income-producing rental properties—depend on one key metric: how well the property’s cash flow covers its debt obligations. For this reason, rental vacancy rates should be a key indicator for real estate investors if they are considering this type of loan.
In tightening markets, vacancy rates are falling and rental income is strengthening, creating a more favorable environment for these loans. In softening markets, rising vacancies can limit cash flow and make it harder to meet loan requirements.
🏢 Tip from a DSCR lender: Lower vacancy means stronger rental performance, which improves your debt service coverage ratio—an essential qualifier for DSCR financing.
Where Vacancies Are Rising or Falling Most
LendingOne analyzed the latest U.S. Census Bureau data to identify the metros where rental vacancies are rising—and where they’re falling—to help investors assess where DSCR loans may be most viable.
Here are our top-line findings:
- The U.S. rental vacancy rate rose to 7.1% in Q1 2025, up from 6.6% a year earlier—marking the highest level in six years.
- Among the largest 50 U.S. metros, Milwaukee, WI and Kansas City, MO saw the steepest year-over-year vacancy increases (+9.0 and +5.8 points, respectively).
- Metros with the lowest rental vacancy rates in Q1 2025 include Providence, Richmond, and California markets like Riverside, San Diego, San Jose, and Los Angeles—all below 4%.
U.S. Rental Vacancy Rates
The U.S. rental vacancy rate reached 7.1% in Q1 2025, marking its highest level since Q3 2018—perhaps the aftermath of Pandemic Boom-era construction activity, shifting migration patterns, and economic conditions affecting renters’ affordability.
📉 For investors, this trend suggests a more competitive rental market, potentially leading to lower rents and increased incentives to attract tenants. However, opportunities may exist in regions with stable demand and limited new supply.
Rental Vacancy Rates for America’s 50 Largest Metro Areas
These are the 5 metros with the highest vacancy rates:
- Milwaukee-Waukesha, WI: 14.5%
- Kansas City, MO-KS: 12.5%
- Birmingham, AL: 12.3%
- Tampa-St. Petersburg-Clearwater, FL: 11.9%
- Houston-Pasadena-The Woodlands, TX: 11.6%
These are the 5 metros with the lowest vacancy rates:
- Providence-Warwick, RI-MA: 2.2%
- Riverside-San Bernardino-Ontario, CA: 3.4%
- San Diego-Chula Vista-Carlsbad, CA: 3.7%
- Richmond, VA: 3.8%
- San Jose-Sunnyvale-Santa Clara, CA: 3.8%
Beyond this snapshot of vacancy rates, it’s critical to examine where vacancies are rising and falling across the country to understand the trajectory of rental supply and demand. In markets like San Francisco or New York City, vacancy levels are likely to remain lower than the national average due to sustained demand driven by limited housing supply, high population density, and a robust job market.
Therefore, investors need to adopt a dynamic view of vacancy trends to assess long-term cash flow potential and risk, ultimately determining if the market is ripe for DSCR loan opportunities.
✅ Investors seeking DSCR loans may benefit from investing in low-vacancy markets with stable demand and limited new construction.
Year-over-year rental vacancy rate shifts
These are the 5 metros with the largest vacancy increases:
- Milwaukee-Waukesha, WI: +9.0%
- Kansas City, MO-KS: +5.8%
- Grand Rapids-Wyoming-Kentwood, MI: +5.6%
- Sacramento-Roseville-Folsom, CA: +5.3%
- Hartford-West Hartford-East Hartford, CT: +5.1%
These are the 5 metros with the largest vacancy decreases:
- Richmond, VA: -4.6%
- Las Vegas-Henderson-North Las Vegas, NV: -3.7%
- Providence-Warwick, RI-MA: -3.5%
- Raleigh-Cary, NC: -3.2%
- Virginia Beach-Chesapeake-Norfolk, VA-NC: -3.2%
📌 Metros with falling vacancy rates, like Richmond and Las Vegas, indicate stronger rental demand—ideal for DSCR lenders and real estate investors looking to optimize financing.
Investor Takeaway: Align Vacancy Trends With DSCR Strategy
If vacancy rates continue to rise in high-supply metros, it may pose challenges for investors using DSCR loans, as weaker cash flow can affect loan eligibility.
Conversely, metros with falling vacancy rates often offer:
- Higher rent stability
- Stronger DSCR coverage ratios
- Better conditions for securing financing with a DSCR lender
Still, investors should consider other factors such as local job growth, economic resilience, and pricing trends before investing.
Final Word for DSCR Loan Investors
Big Picture: With rental vacancy rates reaching a six-year high, investors must understand where supply and demand are shifting to evaluate DSCR loan viability.
- Markets with rising vacancies present more risk.
- Markets with tightening vacancies create favorable conditions for long-term, cash-flowing investments.
Whether you’re a new or experienced investor, aligning market data with your DSCR strategy can make or break your next deal.
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