I am always surprised when a landlord cannot get their place rented. Sometimes, they say “I am waiting on the ‘right’ tenant”. It all boils down to marketing rental property properly.
That is a lame excuse for not knowing how to effectively market their property. Most often, it is a landlord with just a few properties and a high income from their regular job. Let’s face it, land lording is not for everyone, and there is no guaranteed profitability.
When you have a vacancy, it is no different than having a truckload of bananas delivered to your rental. You have a place to sell, at the end of the month; you cannot sell it any longer. The past moth is spoiled goods. No different than a truck load of bananas. And the next truckload is already underway.
So what do you do? The truckload delivered last month was sold to your current renter. They have already said, “We do not need or want any more bananas”. This can be translated to, “We are moving at the end of the next month, here is our notice”.
Knowing that a truckload of bananas is being delivered on the first of the following month, you need to start to sell them as soon as you can. Advertise now, the banana truck is on its way. Advertise too early, and you are selling green bananas. Sure, some people will buy them, and wait for them to ripen. The majority will want a banana at the right time, about 6 weeks out. The new tenants have to quit buying bananas from their current supplier, and switch to you.
Sometimes, you have to clear out the trucking terminal (i.e. clean out the unit), but the banana truck is coming anyway. And it is full. A large effort apartment turnover will require sending the truck out to the dump. The bananas cannot be sold. Good banana buyers are mostly looking at 6 weeks out; there are a few buyers that want to buy an over-supply in the middle of the month. So they have two trucks to get bananas from. Even some buyers who were promised a truck-full, but the dealer could not deliver. These short term buyers might be your salvation, if they are solid buyers.
Assuming at some point, you have been vacant for two months, you know that there is a problem. Sure, at some point, the buyers will come, but they are not here now. If you lower your price, you could sell more, or you could advertise in more places to reach additional potential buyers will help.
More people will buy your ‘bananas’ in the summer, but there are more sellers too. And it is vice-versa in the winter.
For some reason, landlords are afraid to have a sale. They have to get their top dollar, or go vacant. They are willing to sacrifice profitability, in order to get their price. And they wonder why there are so many unqualified people looking at their apartment.
At a $1200 rent, it is cheaper to lower rent by $100 than be vacant a single month. You need to sell that truckload every month, to get the highest profitability. You can raise the rent in a year, or you can have the ‘golden handcuffs on your renters at the move in price.
You have control over your vacancies; Vacancies are the number one expense you can easily reduce as a landlord. When you start seeing a vacant apartment as just another commodity, it is easy to see what you need to do to sell it. Lower price, or increase your marketing efforts.
We have only had a one month vacancy during our eight years of owning rental properties. I am lucky that there is a fairly high demand in my area. I agree that it makes sense to have a “sale” instead of a vacancy. I haven’t raised the rent for my long-term renters in four years. It makes more sense to keep them there than it does to try to replace them.
Great comment. I have a post dedicated to having the right price to keep tenants in year after year. Putting the “golden handcuffs” on them. On the other hand, you do not get the experience of knowing how to find a great tenant, so there are MANY poss on my site to help you. I screen for a 120 unit apartment complex, so I see 10-12 new tenants backgrounds every month. And I see the issues a bad tenant brings to the table.
Great analogy! Lowering your monthly rent by anything up to 11/12ths is a break even with just one month of vacancy. Something to think about.
It’s all about profitability, not price!
Great analogy! I never thought of it that way, but it’s so true. The longer a rental stays vacant, the more money you are losing. The money lost can’t be recovered; it’s spoiled goods. I also like the way you broke down the lower monthly rent vs. the vacancy. It’s definitely important to think of it in those terms. Sometimes I think about how it would be nice to leave our basement apartment vacant and have the entire house to ourselves, but then I realize that comes at a $6,000+ price tag each year.
I see many landlords concerned about vacancy, but yet they hold onto their price like it’s a sacred cow. Looking at it like it is a commodity, with a short shelf life, makes it easier to understand, and cut prices. It’s not how much your rent is, it’s how much money you make.
I suspect that those who are reluctant to lower rent on vacancies are often too thin. Either they didn’t do good evaluations before purchase or didn’t factor the possibility of changing market conditions. So if they find they *can’t* (or *won’t*) – time to reassess.
Last time we lowered price to move a rental we offered at a 2 year lease and got it within a week. Renter was happy to lock in (but comparable rents decreased during that time)
Great post.
Than you for the comment Rezdent!
yes, some people are penny-wise and pound foolish. I have even seen some keep to their rent, even if they have the building paid off. Profitability is what wins the race, not higher rents. Doubling the rent, and not getting paid, doesn’t make any headway either. I have put a post about pricing here too.
Awesome analogy. Before I got serious about owning rental property, I wouldn’t have thought too much about one lost month, but I’ve begun to see everything in a different light. Crazy what becoming knowledgable (not to say that I am) about a subject will do. Great point that it’s sometimes cheaper to lower the rent than to have a vacant month.
If you ever need advice on rentals, let me know! Each month is quite a bit of money, and can take out the profitability for several months. A months rent can provide quite a bit in the maintenaance budget.
Have you have any experience with “Auction” at city court steps? Do you know how to maximize that?
thank you for the comment. Buying at the sheriff’s sale is an incredibly risky proposition. I have a couple of posts already written that you can read, I have another one that will be coming up.
Great post and illustration! It helps to see missed rental opportunities and vacancies as spoiled goods, just like the delivery of bananas. Planning ahead, that is, looking into the future to your next vacancy and proactively managing that is the #1 way to lower your largest expense. Thanks for the post!
Thank you for the comment!
It’s all about supply and demand. A simple equation that many landlords do not understand.