What is Occupancy?
An Essential Property Management Term
Occupancy is a legal term that refers to how a person can use land or a building. When you hear the word occupancy, you might think of someone living in or using a space, and you wouldn’t be wrong. But the term can also refer to businesses that occupy space, like stores or restaurants. In real estate and property management, occupancy means that someone uses a space for its intended purpose.
As a landlord, you are responsible for ensuring that your rental property is up to code and safe for your residents. Part of this responsibility includes conducting occupancy inspections.
An occupancy inspection is when a landlord or other representative inspects a rental unit’s condition and looks for any potential hazards.
This inspection should be conducted before a tenant moves in and then periodically at least once a year.
Occupancy classification is the official designation of a building’s primary purpose. Each occupancy classification consists of a group of buildings or parts having the same fire hazard and building construction codes.
The three primary occupancy classifications are: residential, business, and industrial.
- Residential occupancies are for structures in which people live, sleep, eat, or carry out similar activities. These occupancies include single-family homes, apartments, hotels, and dormitories.
- Business occupancies are for those buildings in which people conduct transactions or carry out office work. These occupancies include stores, banks, and offices.
- Industrial occupancies are those in which people manufacture or store products. These occupancies include factories and warehouses.
An occupancy permit is a document that grants permission for a property to be used for a specific purpose. You need to go to your local building department and pay a fee to get an occupancy permit. The department will review the application and, if approved, you will be issued an official permit. The permit will list any conditions that must be met for the permit to remain valid.
Mortgage Occupancy Clause
Some mortgage companies will include an occupancy clause as part of your mortgage that states the property must be owner-occupied. This means the borrower must live on the property and it must be the owner’s primary residence for the loan to be valid.
There are a few exceptions to this rule, but they are rare. If you are considering buying an investment property, check with your mortgage company first to see if they have an occupancy clause.
What Is a Good Occupancy Rate?
An occupancy rate is the number of units in a rental property leased and occupied by tenants divided by the total number of units in the property. For example, if a property has 100 units and 90 of them are leased and occupied, the property’s occupancy rate would be 90%.
A reasonable occupancy rate depends on many factors, including location, property type, and current market conditions. However, most landlords generally aim for an occupancy rate of at least 80–85%.
When it comes to occupancy, there are a few key things that landlords should keep in mind. First and foremost, it’s essential to set clear expectations with your tenants from the start. Be sure to communicate your occupancy policy in your lease agreement and ensure that all tenants are on the same page.
Second, it’s important to know your state’s occupancy laws because they can vary based on location and zoning laws.
Related Landlord Content
Lease addendums allow landlords to make minor changes to their current lease agreement, such as adjusting the rent payments or adding a pet.
When financial health is on the line, landlords will want to consider all their options, including refinancing their investment property.
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