3 Little Known Factors to Help Minimize Vacancy Rates

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Gaining long-term tenants is a desire for any landlord. Securing a long-term tenant provides security for the unit along with a decrease in vacancy rate. These tactics are used to ensure units are occupied by tenants with a desire to stay longer.

When first starting out, I made every mistake imaginable: bought the property too high, underestimated rehab cost, screening tenant criteria was little to none, and many more. Because of these initial mistakes I found myself trying to re-coop the overages on the backs of the tenants, which is a big NO-NO! Finally, after reviewing my business plan, it triggered my purpose for becoming a landlord; long term wealth. The only way to become a successful landlord was to keep all units occupied and minimize vacancy.

After evaluating all processes from screening procedures to exit interview, I focused on the patterns and behaviors of tenants, once these patterns were identified, minimizing vacancies was not hard to do. All humans are socially, physically, and emotionally connected to someone or something. Learning how to identify what the prospective tenant is most connected to will help determine what needs to be focused on during the ongoing conversations regarding their needs. By listening attentively, all candidates will tell exactly what they are looking for in a unit. If the unit does not offer the basic amenities the tenant is requesting; then the tenant will not qualify for long term tenancy. That being said…

Here Are 3 Factors to Help Minimize Vacancy Rates

1. Social Connection– One way to determine if the prospective tenant can be encouraged to sign a long term lease is to find a social connection between them and the unit. This may be a close family member that lives nearby. This connection can be made by always adding a “For Rent” sign in front of the property. This form of advertisement is still the best, in my opinion, because it provides a referral from someone in the area that is a family member or friend. Having a connection with a neighbor minimizes the likelihood of the tenant making a brash decision to move unexpectedly. The best referral is from an elderly parent or some other elderly family member. Finding the social connection will assist you during the screening process for long term tenants.

2. Physical Connection– I have never met anyone that enjoyed moving. This is a huge expense and an unsettled feeling for everyone involved. By focusing on the physical distress of moving I offer potential tenants the option to reduce the monthly payment if a long term lease is signed for a minimum of 18 months versus the traditional 12 month lease. For example if the going rental rate for a  SFR is $650-$800, the rent for a traditional lease maybe $725, i would explain “by signing an 18 month lease or longer at $700 monthly can reduce your rent by $300 throughout the term of the lease.” In actuality, by signing the 18 month lease, you will limit turnover and will secure $12,600 per tenant versus $8700 for a traditional lease. I make sure to offer this solution while the tenant is in the midst of moving, this is done for 2 reasons: fatigue enhances poor decision making and the tenant will have a fresh reminder of how difficult it is to pack and move.

Tenants with school aged children are a major advantage. These tenants are looking to secure a stable placement and a good school district for the kids. On average, when securing a tenant with school aged children, the length of stay is 3 years. As discussed previously, offering an 18 month lease will provide the security you are looking for and the tenant becomes settled in their home. After the 18 month lease it is customary to then continue with an ongoing 12 month lease.

3. Emotional Connection– this tool is essential when communicating with tenants and potential tenants. The emotional connect is closely tied to the social connection, normally these connections go hand in hand. I call the emotional connection the “Jedi Mind Trick.” If any of you are familiar with Star Wars, the “Jedi Mind Tricks” is a psychological tool used by the Jedi to persuade their counterparts to do whatever they say. I use this tool when communicating by making the tenants feel as though their rental unit is exactly that: “THEIRS.” I am not an advocate of manipulation and do not condone it in any way, but the “Jedi Mind Trick” is valuable. For example, when referring to the unit; its always theirs “is everything alright with “YOUR” home, or “is there anything that can be done to make the move into YOUR new home easier?” This technique instills the pride of ownership. This simple approach subconsciously provides an immeasurable value to the property.

Related: I Have A Question For You About Your Vacancy Problem…

Tell me if you know of any more tactics/connections landlords use to secure long-term tenants to reduce vacancy rate…

Photo Credit: Marcin Wichary

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About Author

Marcus Maloney G+ is the Executive Officer of 3rd Generation Management & Holding LLC, which is a family owned and operated real estate investment firm. The firm's goal is to provide affordable solutions in real estate while providing exceptional opportunities for community redevelopment for the residents of Phoenix, Arizona. You can follow Marcus on Twitter

23 Comments

  1. Al Williamson on

    Marcus,
    Brilliant idea to touch on these three traits to minimimize vacancies. I’m going to add them to my vacancy reduction plans. Thanks

  2. One technique I have found useful on a couple of occasions is being more flexible with tenant’s who have credit blemishes. For instance, two years ago a 50ish, childless couple applied, and through certain life circumstances, they had to file for a BK. He, however, works for a luxury car dealership and makes six figures and has been there quite a while. At a rent of $950/month, you do the math. I charged them a $75/month rent premium to compensate me for taking a chance.

    Guess what – they have been the best tenants I have ever had! They pay on time, never bother me for anything, and they’re still there. I’m sure they don’t relish the idea of having to look for a new rental with a BK on their record, since a lot of landlords will immediately disqualify them. And now, the market has caught up to their rent, but I’m not considering raising it since they’re dream tenants.

    Lesson: Sometimes by solving a problem for tenants, without taking on too much risk yourself as a landlord, you can find gems that will stay for quite a while.

    • Marcus Maloney

      Sharon,

      Flexibility is a must, it’s good to make sure you have numerous strategies for tenants with challenges. I had a similar issue a truck driver got caught in the market crash and lost his home. Him and his wife’s credit was challenged but they made more than enough to cover their debt along with the rent. They are excellent tenants, I never receive calls, and they pay on time. I do check credit but I am not as concerned with the score but what is on the tenants credit. Adding a premium is a really good idea. I normally look for delinquent utilities since that is the basic expenses; if they can not pay the utilities then I will usually pass because they mismanage their money.

  3. Act Quickly-
    Biggest thing is don’t let an empty apt. stay empty for long! Sounds silly but I know landlords with a very laid back approach and the delay cost them dearly. If mine are empty over a month I did something wrong.

    Transition good renters-
    We can’t discriminate when renting. However we know that a 20yr old couple renting a starter apartment is not going to be a long term renter in that unit. I have enough units now I am able to rent to the young couple and then when they are ready to upgrade (better job, etc) I can put them into a larger unit or a SFR when one comes open. Starter apt’s are usually transitional (starting out/starting over). If they are good, try to transition them into another one of yours!

    Consider ppl on disability (if they qualify fair and square like anyone else)-
    Some of my best tenants in regard to time of stay are ppl on disability (of any age).
    1. They’ve learned how to live on their fixed SSID income (unless it just started).
    2. Moving is twice as big a hassle for someone with limitations, so they don’t do it much.
    3. Their reason for coming to you is usually legit (closer to family, healthcare, etc).
    4. They seem grateful in general for all you do (lawn care, snow removal, fixing things for them)
    I have several renters on disability and they are excellent long term renters. They generate almost zero complaints, in fact they are often my neighborhood watchdog! They seem to stay forever, minimizing my turnover.

    Just some thoughts. BTW- I’m blessed to have vacancy of 1.6% last yr, and have never had over 3% vacancy in any yr.

    • Marcus Maloney

      Dave,

      Wow, disabled individuals are great, never thought about that, this is why it is good to discuss what other investors are doing. That makes complete common sense, they are least likely to move. I’ll have to consider it. Do you do any modifications to your property to accommodate their needs?

      I do utilize the transition for my tenants, if they are in a 1bd and they have life changes, get married or have family expansion I offer them one of my larger units.

      Great input Dave.

      • Marcus,
        I’m not an expert, but I think the ADA requires “reasonable accommodations” be made. What does that mean, who knows. I know of one case where the renter needed a ramp to get their wheelchair up 2 steps. A local program- C.A.P. (Community Action Program) paid for and installed an aluminum ramp at no cost to the property owner and in compliance of ADA regulations. If/when the renter moves it will be removed too. None of my renters on disability are in wheelchairs, they just have health issues that make them unable to work (bad back, bad heart, etc). To be honest most get around pretty good, but have some limitations. Most on disability can move through a normal house/apt (first floor of course). If they need grab bars or similar items it will likely come through the same program that did the ramp, at no cost to the owner. I do allow a small pet for these folks as they usually live alone and don’t get out much. Their pet is their companion, so think of this ahead of time. Also, the majority of my disabled renters smoke (a bit ironic I know), so plan on de-smokin the unit when they move. To me it’s worth the pet and smoking because they are such good long term renters.

        • Marcus Maloney

          Dave,

          I was in Human Resources for years so that is why I asked about the “reasonable accommodations” for the ADA. You are right about Community Action Programs that will pay for the services, 2 of my properties I rented to a non-profit that provided housing for teens with some minor disabilities. I allowed them to build to suit and they made about 25k worth of upgrades to the property. They upgraded our HVAC systems, and blew in additional insulation, and remodeled the kitchen. This is a source of funding I always tell landlords about, this may be in my next blog. Having a contract with the State is beneficial but you will have to know exactly what type of clients they will be serving, and if it will be a detriment to the community.

  4. Mehran Kamari on

    Great article and also a great discussion below. Thanks for sharing the type of knowledge that only comes from years in the business AND a keen eye to what’s really going on in the game besides numbers.

    • Marcus Maloney

      Mehren,

      Ppl often forget about the human side of investing. It is easy to get lost in the numbers and be focused on bottom line; which is important. However, catering to the needs of others will put you in a position to succeed as long as it is in line with your business plan.

  5. I like your suggestions. After years of experience I’ve found that the factors you’ve mention are very helpful to keep tenants in place. I usually look for those factors in the screening process.

    Luke,

  6. We lowered our rent by $150/month from what we could have gotten to secure a long term tenant who had just gone through a divorce, had his ex-wife’s runaway spending negatively impacti his credit, but had previously had great credit and had been at a great job for over 30 years. He is amazing, drops off our rent check each month to my husband’s office, and as a police officer who works nights he has been able to be around I let our handyman in when needed. Being in our unit allowed him I stay in his daughter’s school and bus boundaries, as well as close to his ex and his former MIL’s assisted living facility.

    • Marcus Maloney

      Katie,

      I have never lowered our rent by that much, you must have really got a deal on the property where it has that much cash flow on that property to drop $150. If it works and you are able to help then its a win-win for both parties. It is really relieving when you know you have found the right tenants. The hard part is when it is time for them to leave.

  7. This article is great and provides some really useful information. I think my favorite is the first one I didn’t think about it in that perspective to have the tenants sign a 18 month lease but even lowering the rent just a little is appealing for both parties for us as the landlords because we get a secure long term tenant and they as the tenants get cheaper rent its a win win. I will be going back to this article when screening my prospects. Thank you Marcus.

    Abel

    • Marcus Maloney

      Abel,

      The option for lowering rent by adding a longer term is always attractive for tenants unless they anticipate leaving within a year. Normally, tenants that PLAN to leave within a year I am skeptical about unless while talking to them the move is because of possible job transfer or buying a home, any other reason to me is a red flag.

      The best time to offer the 18 month option is done after you are sure you will rent the property to the applicant and you know they are in the process of packing. They will jump on it because they have the fresh memory of the hard work of moving.

  8. Price right, and market effectively. Have a strategy for a fast apartment turn.

    With my 24 apartments, I have a pretty good turnover and have to get tenants on a regular basis. Having a good renter in the unit will minimize the turn. There will be less damage, and you will be able to show the unit.

    I turn many apartments in a single day, with zero vacancy expense.

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