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
When ROE declines to those levels (ie; values have skyrocketed) it's time to trade into other deals and to releverage your portfolio, assuming this is a business you are operating with the intention of growing NCF and net worth.
Sorry I almost forgot,
In view of the prior posting by that old fuddy duddy Lucius da Limper, I want everyone to know that I am trying to correct this situation. Some time ago I posted to this organization a
informative item about utilizing shipping containers combinations of three into cheap housing. Well I have started. I can upon completion sell a 1,200 all steel house with Solar Panels for electricity, etc. etc. 3 bedroom 2 bath located on the North end of the San Fernando Valley for $58,000. nothing down and payments of about $375 a month. I broached the subject to members of the Los Angeles Housing Authority and they offered to buy them all upon completion and stuff them with third generation families on relief under Section 8. I have declined, I will handle the selection of tenants/owners myself. I was going to do about 15 houses then stop and admire. Well, in view of the attitudes of our local leaders my new goal is 3,000. I am also going to do infill into existing neighborhoods. I will make them pretty, artistic, functional and very Bucky Fuller sans Frank da Lloyd Wrightish. I know I had something to do other then sit around waiting for the apostles or whatever to come and get me. Besides, I am bored. Everybody tells me it cannot be done. Damn after listening to all of you, I think it can. so away we go. Into the Soup for Group. or the old breadline by Two Thousand and Nine.
Cheers fellow investors, screw the rules.
Lucius
Wow! A fantastic idea and one I sure want to hear more about your progress in this area.
Everytime I see another bum on a corner with hand out I wonder if & what the solution might be, other than what Herr Schilgruber came up with to "purify" Europe.
Puhleeez, keep us informed of your progress here.
Thank you for your response. I really appreciae all of the insight you have given to me as a ne "potential investor". It seems as though there may be no "tried and true" method towards determining potential rental
information. So now I guess my ultimate question would have to be, how much could I charge a prospective tenant and avoid violation of the "fair market" guidelines ? I have a property which lies within a mixed
population of people., 90% investor owned and 10% primary owned. I think this condominium association is essentially section 8. What do I do as an owner in terms of rents charged?????
Repeat after me: Our Father who art, etc.etc.
Section 8 deal? lovely, I would call they who are in charge of Section 8 at that address and ask them. I would then contact the building manager and ask him.
If the world has ended and you are unsatisfied I would then start punching doorbells. Hand them a card,You are doing a survey of rentals in the area as there have been some reports of excessive rental charges. In the usual course of events you will get it all including volunteer information as to their neighbors rents.
cheers and good luck. Lucius
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.
I haven't thought of that as a great way to get a tenant in. That is a good suggestion.
How do you determine how much rent to charge outside of asking all of existing tenants what they are paying?
Ema noh Ya
I am of course a member of the Apartment House Association. They keep records of rental rates in most of the members buildings. I of course ask them, and I also ask the many rental agents who would like to list my apartment. Some of whom sell lists so that there is no charge for their service. If I have units that are difficult to rent I will pay rental commissions and I will also pay my own tenants if they supply me with new tenants.
In the past there were various formulaes for setting the rents. One used to be. Pay $100,000 for a house, monthly rental about $1,000. Of course now that housing in these parts has flown up the wall on prices. That may no longer apply. What do you charge for the rent of a $300,000 2 bedroom 1 bath 850sq.ft hse in a medium working cl***** area? Well the hope is that you bought it for about $150,000 three years ago before the prices went up. Not the values, the prices. I have played some games over the years, such as adding a single unit into a garage conversion, bathroom tiled etc. very nice but still a single. Had to add a carport to keep it all legal. but that brings in an additional $500 a month. So here is a house worth about $99,000 three years ago. Rent still at $1,000 plus now $500 for unit. Unit cost $5,000 to erect and convert. Good return on the money. But the house, are you ready for this? Will sell for about $290,000. Why would anyone pay such a price, well to live in. It will probably take almost one half of the family income to afford it, but its this way all over. Thats why our foreclosure rate is starting to climb. At one half of the income for housing, there is no reserve for a bobble in the economy. Out of work and no reserves. Foreclosure.
As I said to find out what rents to charge, I check the neighborhood and all sources and come up with an educated guess. Be carefull to keep your rents within the top price of the area. If you go over your tenants will not be able to stay and you will have vacancies.
I hope this has been of some assistance. I do not know just what is going on elsewhere in the world but here in LaLa land the prices are way over value and the rentals cannot reflect it without increased vacancy rates.
Cheers, Lucius
When ROE declines to those levels (ie; values have skyrocketed) it's time to trade into other deals and to releverage your portfolio, assuming this is a business you are operating with the intention of growing NCF and net worth.
Sorry I almost forgot,
In view of the prior posting by that old fuddy duddy Lucius da Limper, I want everyone to know that I am trying to correct this situation. Some time ago I posted to this organization a
informative item about utilizing shipping containers combinations of three into cheap housing. Well I have started. I can upon completion sell a 1,200 all steel house with Solar Panels for electricity, etc. etc. 3 bedroom 2 bath located on the North end of the San Fernando Valley for $58,000. nothing down and payments of about $375 a month. I broached the subject to members of the Los Angeles Housing Authority and they offered to buy them all upon completion and stuff them with third generation families on relief under Section 8. I have declined, I will handle the selection of tenants/owners myself. I was going to do about 15 houses then stop and admire. Well, in view of the attitudes of our local leaders my new goal is 3,000. I am also going to do infill into existing neighborhoods. I will make them pretty, artistic, functional and very Bucky Fuller sans Frank da Lloyd Wrightish. I know I had something to do other then sit around waiting for the apostles or whatever to come and get me. Besides, I am bored. Everybody tells me it cannot be done. Damn after listening to all of you, I think it can. so away we go. Into the Soup for Group. or the old breadline by Two Thousand and Nine.
Cheers fellow investors, screw the rules.
Lucius
Thank you for your response. I really appreciae all of the insight you have given to me as a ne "potential investor". It seems as though there may be no "tried and true" method towards determining potential rental
information. So now I guess my ultimate question would have to be, how much could I charge a prospective tenant and avoid violation of the "fair market" guidelines ? I have a property which lies within a mixed
population of people., 90% investor owned and 10% primary owned. I think this condominium association is essentially section 8. What do I do as an owner in terms of rents charged?????
Thanks Lucius.
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.