Dealing With Vacancies
If you are a landlord, vacancies are a fact of life. If your rental cash flow is thin to begin with, not only will a vacancy put your balance sheet in the red, but several months of occupancy are needed to just break even.
Reducing your vacancy rate, is easier and usually cheaper if you induce your current tenants to stay longer and to renew their leases. Some strategies that come to mind:
1. Rent below the market top. Rents for similar properties have a range. Price your rent in the middle of the range.
2. Keep the property in good repair, and immediately correct all maintenance items reported by the tenant.
3. Raise your rents slowly. For example, the market may bear a $50 monthly increase, but why not just go up $25 per month -- still keeping your rents below the market top?
4. Give the tenant a small rebate at Christmas time if the rent has been paid on time throughout the year -- $25 after one year, $50 for tenants who have been with you for two years, perhaps $75 for tenants with you three years and longer. Include a letter of appreciation with your rebate explaining that you are giving the rebate in appreciation for their care of your property and for their record of on-time rent payments.
These are just some of the things you might do. If you implement all of these suggestions, I suspect that the word will get around. After a few years, you may find that you have a waiting list of applicants for your rentals whenever one does become vacant.
No waiting list yet? Offer the current tenant, that just gave you a 60 day lease termination notice, a finder's fee if they secure a replacement tenant for you before they vacate the property. Consider the cost of advertising and the lost income incident to a vacancy, then ask yourself if a $100 - $150 finder's fee is worth the price if the current tenant finds you a qualified replacement before they vacate.
I still have a pretty bad property that is hard to keep rented. With vacancy rates being around three months.
One thing that I thought up this year that might work is to give a free appliance away with the tenant staying 3-4 years. Think about it, I would pay $400 bucks anytime to make 3-4 years worth of income.
Also, you will have newer appliances in the units if you use this technique! And tenants will take care of them better. Hmmm... the list goes on and on!
Joel,
I do this all the time, all my SFR rentals go under a L/O.
Appliances are a great way to get them to come to your subject property. I only purchase new dent & scratch appliances as I get a very good price for them.
I try to line up all my customers to visit the subject property all at the same time.
I have tried getting scratch and dents on our area. And sometimes I can get a fairly new one. But on one item I bought the Scratch N Dent stove wasn't worth it because I had to purchase extra items that were missing and it took up more time going through that.
Home Depot had a FREE delivery on their appliances around here for the last month, I don't know if that sale is still going on.
Joel,
When you say a "pretty bad property", I assume you mean declining neighborhood, high turnover rate, and difficult to rent.
You may have to bite the bullet on the next vacancy, but when you get the tenant you want to keep, offer incentives that improve your cash flow as well.
Here's a suggestion from Jeffrey Taylor that puts your tenants into a three year occupancy mindset. Offer your tenant an appliance on a rent to own basis. For example, suppose the tenant does not have a microwave but wants one. Offer to provide a microwave for an extra $10 per month, and after three years (36 payments) the tenant owns the microwave.
You can do this with any and all appliances as incentives, just do it with a three year payoff. Your minimum pricing would be approximately double your cost. That is, if you pay $126 for that microwave, charge $7 per month on your three year rent to own plan.
Dave T
Tenants in this market want a good deal, low rates, the only appliances likely to be popular are DVD players, not large stuff that you get to keep...give clean, functional and responsive mgmt...tell the existing tenants about your vacancies, pay referrals...note: vacancy rates are % of your total avail...time on mkt. is the period required between tenancies to fill vacancies.
How do you determine how much rent to charge outside of asking all of existing tenants what they are paying?
Getting back to the long vacancies on lower priced rentals.
Try to think of things from the renters prospective. They are probably renting because they do NOT think long term. Offering a free appliance in 3 years is VERY long term thinking I believe.
Their mindset is MAYBE 3 months but probably next week is more likely.
So you say you have vacancies for 3 months that cost you approx $1200,
So how about a rent price break every other month. Eg first month $400 security $400 rent. Second month $300 then from then on every other month is 400 and the next $300.
What this does is EVERY month the person thinks oh man I WANT to move but heck next month I get $100 free. Ok I will wait one more month. It is like Lays potato chips to them they can't resist just one more taste.
After 2 years if you keep the same person you have only lost the $1200 you would have lost from one vacancy.
Of course this is only needed in areas where you have long vacancies and you adjust the numbers accordingly.