Landlords, Here's How to Minimize Vacancies
Are you a landlord, or considering being one? It’s almost like a rite of passage into adulthood in today’s world, especially as real estate continues to remain one of the most profitable investments available. Yet, as they say, ‘with great power comes great responsibility’. Stable cash flows and impressive financial returns aside, being a landlord can be quite the challenge in itself.
With this, we've decided to create a series of articles focusing on what we call first-timer fears, which will tackle some of the most common mistakes and issues first-time landlords tend to make and/or face. To kickstart the series, we’ll first discuss one of the most dreaded words when it comes to landlording: vacancies.
As the word itself suggests, a vacancy is when you have no tenants occupying a property, and represents pretty much the biggest loss any landlord can have. When this is the case, instead of having steady rental income that would more than offset the expenses required to maintain the property, a landlord would essentially be draining cash out of his or her bank account.
Needless to say, any reasonable person would want to to lower the vacancy rate of their properties. Vacancy rate is most commonly defined as “the percentage of all available units in a rental property, such as a hotel or apartment complex, that are vacant or unoccupied at a particular time.” Keeping track of your property’s vacancy rate is therefore crucial because it allows you to predict financial metrics such as your return on investment or breakeven point, or simply to better mange your finances.
You can easily calculate vacancy rate by taking the number of vacant units, multiplying that number by 100, and dividing that result by the total number of units in the rental property. To determine whether the rate is too high or too low relative to neighbouring properties, it is useful to reference data from the U.S. Census Bureau or by talking to more experienced landlords in a similar area and market. BiggerPockets’ forum is a highly useful resource to reach this community.
Vacancies are inevitable in any landlording career, but luckily, there are ways to keep them to a minimum. The following suggestions are some of the easiest ways to do so:
Creating Effective Marketing: When marketing a property, consider its location, its value-adding features and your target tenants. Based on these drivers, you can then determine an appropriate price for your property. Along with professional photography and possibly the help of a real estate agent, it would then become much easier to identify long-term, reliable tenants. Doing so will help minimize the turnover of your properties.
Fostering Amicable Landlord-Tenant Relationships: As we’ve established above, one of the keys to lowering vacancy rates is by minimizing turnover. And an easy, fail-proof way is simply to keep your tenants happy. No one likes moving houses. So if you’re able to ensure all your tenant’s requests and concerns are addressed promptly, your tenant would be much more likely to stick around.
Optimizing the Turnover Process: Now even if you end up as best friends with your tenant, sometimes the landlord-tenant relationship simply has to end due to reasons beyond your control. Maybe your tenant has to move across the country for a job, or they’ve decided to buy their own property. Either way, this will increase your vacancy rate, but as long as you keep the turnover period temporary and short, it’s not an issue at all. The turnover process refers to the change of tenants within a property. The first step of the turnover process is a preliminary visual inspection - an initial walkthrough of the property with the tenants on the day they move out. Next, a deeper inspection will help you identify and decide what needs to be done to ensure ongoing adherence to housing codes before the unit ready to be rented out again. During this step, make sure to take pictures and videos of the property to help you determine repairs that may potentially be charged to the previous tenants. Finally, assuming there are no major structural damages to the property, create a work order and give your contractors seven days to fix up the place. Once that is completed, it is best to have a cleaning crew come in and neaten up the property before your new tenants move in.
In the end, as horrible as vacancies sound, they are an inevitable part of a landlord’s journey. But by being better prepared, it is possible to keep the associated costs and stress to a minimum.