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How to lower your vacancy rate.

February 12, 2011

The one item that can really affect your cash flow is your vacancy rate.  Your investment becomes less profitable every month your property is vacant.  If you rent a place for $1,000 per month, then a vacancy is costing you $33 per day in rent alone. It’s also time that your house is open to vandalism, theft, squatters, frozen pipes, etc.  There are some things you can do to improve your chances of limiting vacancies:

  • Keep your existing tenant.  If you like the current tenant try everything you can to keep them. I have offered lower rent, offered a bonus, made improvements, offered to pay for lawn service, etc.  A good tenant that pays on time and causes no problems is worth keeping even if my returns are slightly lower.  It’s better than a vacancy.
  • Start advertising early.  As soon as you know you will have a vacancy, start advertising the property.  There is a standard clause in most leases that say you can do this.
  • Start the clean-up early.  If the house needs exterior paint, tree trimming, or even some internal repairs then try and get those done even before the existing tenant leaves.
  • Time your leases.  Try to have your leases expire during good rental months.  I try and avoid my leases expiring in Dec, Jan, Feb, etc.  I had my last tenant not want to sign another 12 or 6 month lease in January.  I told them let’s just sign till April 30 and then we can re-evaluate.
  • Keep your rent below market or at least below your competition.   This should keep your tenants happy and they will not move for a better deal down the street.
  • Use creative discounts to attract tenants.  I don’t do this with my single family homes, but I see it in the apartment community all the time.
  • Be a good landlord.  Do the things tenants expect: treating them with respect, responding quickly to maintenance issues, being understanding but firm.  I tell my good tenants that I like them and hope they will stay. I give them compliments and do everything I can to keep them happy.
  • Don’t increase the rent.  If I have a tenant that pays the rent every month without issue, then I don’t increase their rent. I would give up another $50 per month to avoid a vacancy.
  • Manage your own properties.  Property managers actually have an incentive to turn over your property.  They usually get half of the first month’s rent when renting your property and then around 10% of the monthly rent thereafter.  So they get paid more when they raise the rent and big payments when they turnover your place.  They have no skin in the game and hold none of  the risk. I highly recommend managing your properties yourself when you are starting out.  If you do use a property manager be sure you get a good one.

If you just can’t keep your current tenant and it appears a vacancy is inevitable, then ask the existing tenant if they know someone that might be interested in the place.  If your current tenant is good the people they know would probably make good tenants as well.

From → Landlord

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