A 200-unit apartment tower can absorb two empty units without anyone noticing. That’s 1% vacancy. The NOI barely moves. The DSCR holds. The lender doesn’t call.
A 6-unit multiplex can’t absorb one.
That’s the fundamental lease-up risk of small-scale BTR. The math is unforgiving because every unit represents 12-17% of your total revenue. One vacancy doesn’t just reduce income — it can breach your CMHC debt service covenant.
TL;DR (Key Takeaways)
- One empty unit in a 6-unit building = 16.7% vacancy — enough to breach CMHC’s 1.10 DSCR minimum on most proformas
- Two empty units = covenant breach territory on virtually every small multiplex BTR project
- Vancouver’s vacancy rate hit 3.7% in 2025 — highest since 1988 — and new-build buildings are offering 1-2 months free rent
- Seasonal leasing patterns matter: listing in December costs you 30-45 days longer to fill than listing in May
- Your proforma needs to survive a 2-unit vacancy for 90 days or your financing structure is too fragile
The Math That Matters
Take a standard 6-unit secured rental multiplex in East Vancouver. CMHC MLI Select financing, 95% LTV, 45-year amortization.
Fully occupied:
- Gross monthly rent: $15,600 (6 units averaging $2,600)
- Annual gross: $187,200
- Operating expenses: $62,400 (property management, insurance, property tax, maintenance reserves)
- NOI: $124,800
- Annual debt service: $112,500
- DSCR: 1.11
That 1.11 clears CMHC’s 1.10 minimum. Barely.
One unit empty for 3 months:
- Lost rent: $7,800
- Annual gross: $179,400
- NOI: $117,000
- DSCR: 1.04
You’re below covenant. One unit sitting empty for one quarter broke the ratio.
Two units empty for 3 months:
- Lost rent: $15,600
- Annual gross: $171,600
- NOI: $109,200
- DSCR: 0.97
Your building is now cash-flow negative. Debt service exceeds NOI. You’re covering the gap from personal funds.
Why Small Buildings Are Different
In commercial multifamily, lenders underwrite to stabilized vacancy — typically 3-5%. On a 100-unit building, 5% vacancy means 5 empty units. Revenue drops by 5%. DSCR goes from 1.25 to 1.19. Nobody panics.
On a 6-unit building, 5% vacancy isn’t really possible. You either have zero empty units (0%) or one (16.7%). There’s no 5% scenario. The granularity is too coarse.
This means standard vacancy assumptions from commercial underwriting don’t translate to small multiplex. A 3% vacancy allowance in your proforma assumes 0.18 units empty at any given time. That’s a statistical fiction. Reality is binary: a unit is either occupied or it isn’t.
CMHC’s underwriting models account for this, but many first-time BTR developers don’t. They plug in 3% vacancy because that’s what the spreadsheet template says, then discover that real-world vacancy comes in 16.7% chunks.
The 2026 Lease-Up Environment
This matters more right now than at any point in the last four decades.
Metro Vancouver’s purpose-built rental vacancy rate hit 3.7% in October 2025 — the highest since 1988. BC registered 25,855 purpose-built rental completions in 2025, roughly 40% more than the previous year. CMHC has flagged that record numbers of under-construction rental units will complete over the next three years.
New-build operators are responding with concessions. One to two months of free rent on signing is now common. Average 2-bedroom rents in Vancouver dropped to $3,279/month in January 2026, down 4.8% year-over-year.
Your 6-unit multiplex is competing against professionally managed 50-200 unit buildings that have leasing teams, marketing budgets, and the financial cushion to offer concessions you can’t match. When a large operator offers two months free on a $3,200/month unit, that’s an effective rent of $2,667/month for the first year. Can you match that and still clear DSCR?
Seasonal Exposure
Lease-up timing matters more than most developers realize.
Vancouver’s rental market has a clear seasonal pattern. Peak leasing activity runs May through August. Units listed in May fill in 15-21 days on average. Units listed in November-January take 30-45 days.
If your 6-unit building completes construction in October, you’re listing into the weakest leasing season. At $2,600/month average rent, each additional week of vacancy costs you $4,200 across 6 units. A 45-day lease-up instead of 21 days = $9,400 in lost revenue before you’ve collected a single rent cheque.
Worse: if 2 of your 6 units haven’t leased by December, you’re carrying them through the holiday dead zone into January. That’s potentially 90 days of vacancy on 33% of your building. The DSCR math from the example above applies.
Plan your construction timeline to deliver units in April or May. This single decision can save $15,000-$25,000 in lease-up vacancy costs.
What Breaks the Covenant
CMHC MLI Select mortgages include ongoing DSCR monitoring. If your DSCR drops below the covenanted minimum (typically 1.10, sometimes 1.05 with specific MLI Select tier adjustments), CMHC can require you to:
- Top up a reserve fund
- Restrict distributions (relevant if held in a corporate structure)
- In extreme cases, accelerate repayment
This isn’t theoretical. On a thin-margin 6-unit building, a single bad quarter of vacancy puts you in conversation with your lender. Two bad quarters in a row — entirely possible during lease-up or if you lose tenants in winter — and you’re in formal breach territory.
The larger your DSCR cushion above 1.10, the more vacancy you can absorb. A building that underwrites at 1.25 DSCR can handle one unit empty for 6 months before breaching. A building at 1.11 can handle one unit empty for about 5 weeks.
How to Stress-Test Your Proforma
Before committing to a BTR project, run these three vacancy scenarios:
Scenario A — Initial lease-up: All 6-8 units empty for 45 days (construction completion to first tenant). Cost: roughly $26,000-$35,000 in lost revenue on an 8-unit building at $2,600 average rent. Your construction budget needs this line item.
Scenario B — Turnover cluster: 2 units turn over simultaneously (a couple breaks up, a tenant gets transferred). Both empty for 60 days. Annual revenue impact: approximately $10,400. Does your DSCR survive?
Scenario C — Market dislocation: Vancouver vacancy spikes above 5% (it hit 3.7% in 2025 and the trend is upward). You can’t fill 1 unit for 6 months. Revenue drops by $15,600. Operating expenses don’t drop at all. What happens to your cash flow?
If your proforma can’t survive Scenario B without breaching DSCR, your financing structure is too aggressive for the asset class. Either increase your equity (reduce LTV from 95% to 85%), find a lot with lower land basis, or build strata instead.
The Mitigation Playbook
You can’t eliminate lease-up risk on a small building. You can reduce it.
Price slightly below market on day one. Listing at $2,500 when the market is $2,650 fills units in 10 days instead of 30. The $150/month discount across 6 units costs $10,800/year — far less than 45 days of vacancy on 2 units.
Build to April/May completion. Align your construction timeline with peak leasing season.
Pre-lease before completion. Start marketing 60-90 days before occupancy. Take deposits. Secure tenants before the building is done.
Budget a lease-up reserve. Set aside 3 months of full-building debt service ($28,000-$35,000) in a separate account. This covers the gap between construction completion and stabilized occupancy.
Diversify your unit mix. Don’t build 6 identical 2-bedrooms. Mix 1-beds and 2-beds. Different price points attract different tenant pools and reduce the risk of competing with yourself.
Lease-up risk is manageable. But it requires planning, conservative underwriting, and cash reserves. The proforma that works only at 100% occupancy isn’t a proforma — it’s a wish.
David Babakaiff is the Co-Founder and CEO of VanPlex, a Vancouver-based company specializing in multiplex development and Missing Middle housing. VanPlex uses its AI-powered PlexRank system to identify and underwrite multiplex conversion opportunities under BC’s Bill 44 zoning reforms.
Want to stress-test your lot’s BTR numbers? Visit VanPlex.ca and run a proforma.
