Having been born and raised in SoCal, doing business there for over three decades, many of the lessons learned in nearly a decade workin’ in other states has been instructive — an understatement if ever there was one. I’ll bet if you’re invested in a midwestern state, the thought of a last quarter vacancy freezes you in your tracks, pun intended. A November vacancy in San Diego is irritating, even a tad worrisome, but it gets filled. Instead of happening in a couple days or weeks, it might be a month. That’s an eternity around these parts. Yet that’s relatively overnight compared to dealing with having to rent up a unit in chillier climes, especially when it’s cold, wet, and holiday season. However, if escrow is closing on your latest acquisition in the winter, or you find yourself taking over units with leases rolling over then, what to do?
As usual — it’s all about planning.
It varies a little from market to market for local reasons, but there’s always a range of months when having leases roll over is preferred. Yeah, I know, Duh. Still, when closing on vacant units this time of year, or when taking over leases expiring now, it’s easy enough to eliminate the problem. Simply give new tenants or tell existing tenants they have a choice. They can sign say, a six month lease, or an 18 month lease. Either way you’ve eliminated the problem. The lease(s) will be timed to expire within the prime leasing season. But what if you own a couple dozen doors or more, maybe a lot more?
Do what builders and developers have been doin’ forever. Understand your market’s absorption rate. That is, the rate at which it can absorb vacant units — how many at a time? How many units can you or your management firm lease in 30 days? Is it a different figure just one neighborhood over? Maybe, maybe not. It’s almost a matter of sanity maintenance, isn’t it? Even if you’re in a market in which everything rents overnight with a 3 X 5 card on the front yard tree, having to mess with 10 new vacancies simultaneously isn’t any less of a pain. I know, cuz I’ve seen me do it.
Many members here talk about how they’ve learned to specialize in various markets for their long term investments. Using this method of staggering rollover times is, for most, a practical matter of self defense. By spreading out a buncha leases over six months, you’ve created for yourself an orderly process in which you haven’t antagonized the local absorption rate. This also aids tremendously, your ability to plan various work projects around vacant units. Gettin’ work done in the winter in potentially extreme weather is to be avoided when possible. By ensuring your vacancies will pop up during the prime rental season, and during reasonably decent weather, you’ve gone a long way towards eliminating logistical pains in the keister, not to mention your bank account. Also (Captain Obvious alert!!), by scheduling any vacancies for the best renting season, you’ve also virtually guaranteed yourself a far greater slice of the tenant pie. You think you don’t want dead of winter vacancies? Tenants aren’t exactly out in droves, lookin’ for their next place right after finishing their second piece of pumpkin pie.
Now’s the perfect time to address this problem. Give your tenants notice that rollover time will mean a shorter or longer term lease. You’ll quickly find out that for the most part, they’ll be grateful for the change.
Photo: DarrylManaging Residential Income Property: One Simple Bit Of Timing Can Make A World Of Difference by Jeff Brown