The cost of an empty unit
In real estate, time is money — and a vacant apartment is like a meter running in reverse. Every unoccupied month means lost rent revenue, which property managers in oversupplied or slow-demand markets feel acutely. In 2024, the U.S. saw a record surge of new apartment supply — over 500,000 new units delivered, a near 40-year high. Many of these “peak deliveries” hit fast-growing Sun Belt cities such as Phoenix, Austin, and Dallas, flooding local markets with inventory. Occupancy has slid in these areas, with vacancy rates spiking 300–400% above normal in some Sun Belt metros.
For an owner, a unit sitting empty is a visible, painful cost. It’s no surprise that in high-vacancy environments, landlords pull out all the stops to fill units. Rent concessions — free months, move-in discounts — became widespread. In fact, amid 2024’s apartment glut, average leasing concessions climbed to about 5% of annual rent, the highest level in years. Free rent might solve physical occupancy, but it chips away at economic occupancy — the rent dollars actually collected. And chasing occupancy at all costs can introduce hidden costs that, over time, are often more damaging than a few months of vacancy.
Betting on a riskier renter
Facing revenue pressure, many property managers are asking: Is it better to loosen tenant criteria and get someone — anyone — paying rent, rather than let the unit stay vacant? In oversupplied or low-velocity markets, the answer isn’t straightforward. On one hand, relaxing standards widens the renter pool. Some operators have indeed lowered credit score requirements or income thresholds to boost occupancy, especially in Sun Belt cities with rapid construction. In Phoenix — a metro inundated with new apartments — owners have tried to maintain above-budget occupancy by lowering their qualification standards, resulting in a noticeable drop in the average credit quality of incoming renters.
In slower markets (think certain Midwest cities with flat population growth), owners face a similar dilemma: hold out for a perfectly qualified tenant and risk sitting empty for months, or take a chance on a less-qualified renter who can move in now.
The appeal of the quick fill is obvious. A vacant unit generates zero income, whereas a marginal tenant at least starts paying rent. Landlords often look at a dark unit for 2–3 months and conclude that even a tenant who might default later is worth the risk — at least they’ll capture some rent in the interim. This occupancy-vs-risk arbitrage mindset has grown during the recent glut of apartments. However, filling units with higher-risk renters can create a false sense of stability. Properties appear full, but they’re filled with residents on shaky financial ground. Those renters might be stretching beyond their means — nearly 14% of U.S. renters incurred a late fee in 2024, a sign of widespread financial strain — or relying on move-in specials. In effect, some buildings may be sitting on a hidden default bubble.
At TheGuarantors, our data shows that renters with sub-600 credit scores are over three times more likely to default during periods of economic stress compared to prime applicants. We consistently see that this segment is highly exposed to even modest shocks — when inflation rises or unemployment ticks up, default rates in the sub-600 population can exceed 20%, while prime renters typically stay below 5%, reinforcing how credit quality directly impacts portfolio stability.
The hidden costs of default
When a risky renter goes bad, the costs can quickly eclipse the benefit of filling that unit a little sooner. A tenant who stops paying after a few months triggers a cascade of expenses: lost rent during eviction proceedings, legal fees, unit turnover repairs, and marketing to re-lease. On average, an eviction can cost landlords around $3,500 all-in, including 2–4 months of uncollected rent plus court costs, labor, and cleanup. That’s before considering intangibles like time spent and staff resources. In many cases, a landlord who hurriedly filled a vacancy with an unreliable tenant ends up losing more money than if they had waited an extra month or two for a stable, better-qualified renter. It’s the classic penny-wise, pound-foolish outcome.
There’s also the broader operational impact. High turnover and default rates drive up bad debt on a property’s books, eroding true economic occupancy. Property staff get bogged down by evictions and collections instead of leasing or maintenance. In oversupplied markets, a string of defaults can further depress occupancy — one risky renter moves out and now that unit is vacant again, potentially in worse shape than before. In 2023, eviction filings surged in several Sun Belt cities; for instance, Phoenix saw about 30% more evictions than pre-pandemic norms, illustrating the churn that can result when renters are placed into units they ultimately can’t afford.
TheGuarantors case study: A cautionary tale from Maryland
Consider one of our forward-thinking partners in Maryland. This multifamily operator had been using an enhanced lease guarantee program for “conditionally approved” applicants — essentially, renters who narrowly missed the typical income or credit criteria. But as vacancies increased, ownership applied pressure to boost occupancy quickly, and the property team decided to pause our program temporarily to test a DIY approach. They accepted high-risk renters with only a one-month deposit as protection, hoping that immediate occupancy would outweigh the downside.
We flagged the risk upfront — nearly 40% of that applicant pool had FICO scores below 520 or no score at all, a segment that, based on our data, carries an expected default rate exceeding 20% in times of economic strain. More importantly, our analysis provided absolute evidence that this strategy would produce negative value — even factoring in shorter vacancy periods, defaults and turnover costs would outpace any short-term gains. The property team acknowledged the risk but, under ownership pressure, moved forward with the experiment.
Within six months, defaults across that group spiked, and it became clear that a single month’s deposit barely covered the losses — let alone legal fees, turnover costs, and marketing expenses. After seeing the financial impact firsthand, the operator quickly reverted to adequate coverage for medium-risk applicants.
Striking the right balance
Ultimately, the goal for owners and operators is to maximize occupancy without inviting untenable risk. There is a middle path in the occupancy vs. bad debt trade-off. The data shows that properly managed risk can pay off: a slightly riskier renter can be better than a prolonged vacancy — but only if you have guardrails in place.
Those guardrails might include more thorough screening, rental insurance products, or lease guarantees that transfer default risk off the balance sheet. By having a third-party backstop, an operator can accept a tenant with a lower credit score knowing that rent is insured if the tenant defaults. Similarly, replacing a traditional deposit with an insurance-backed bond can cover damage and missed rent beyond a token one-month deposit. These tools effectively turn high-risk renters into medium-risk renters from the owner’s perspective, bridging the gap between an empty unit and a reliable lease.
Operators should focus on “economic occupancy” — ensuring the renters in place are truly paying and contributing to NOI — rather than chasing 100% physical occupancy at any cost. Sometimes that means saying no to an unqualified applicant today to avoid a default tomorrow. Other times it means saying yes to a marginal applicant but with protective measures in place.
Market conditions like peak new supply will eventually ease as absorption catches up, but smart risk management is a timeless strategy. By quantifying the hidden vacancy costs of defaults and evictions, landlords can make more rational leasing decisions. The bottom line: filling a unit is not the same as making money on it. A prudent operator would rather accept a slightly longer vacancy with a solid tenant at the end than endure a revolving door of risky renters and write-offs. The good news is that with the right tools and insights, owners don’t have to choose one or the other — we can fill units and keep bad debt in check.
Sources:
U.S. Census Bureau Multifamily Completions and Starts Data (2023–2024)
RealPage Market Analytics on Leasing Concessions (2024)
Moody’s Analytics: Economic Occupancy Trends (2024)
NMHC Quarterly Rent Payment Tracker (2024)
Princeton Eviction Lab National Database (2023)
RentCafe Market Reports on New Apartment Deliveries (2024)
TheGuarantors Internal Risk Management Data (for Maryland case study)
National Multifamily Housing Council (NMHC) Credit Quality Reports
Urban Institute: Eviction Cost Estimates (2023)
