I Have A Question For You About Your Vacancy Problem…

I Have A Question For You About Your Vacancy Problem…

3 min read
Ben Leybovich Read More

Join BiggerPockets (for free!) and get access to real estate investing tips, market updates, and exclusive email content.

Sign in Already a member?

Being a featured writer on the BiggerPockets Blog certainly has its perks, the biggest one of which is that I can ask a question whenever I want and receive lots of different opinions.  This is indeed a pretty cool thing and today I’m going to exercise my option to ask a question. 

But first, allow me to set the stage:

The Past 7 Months

The past 7 months, or so, have been quite tough for me and my portfolio – I’ve literally turned over half of my units.  This is a very worthy topic for an article in and of itself, however now is not the time.  Let me just say that two-thirds of the vacancies were associated with the building I had bought in February which is a re-positioning project – I’ll tell you all about it some time.  All the rest of the turnovers were expected and inline with about a 3% annualized vacancy factor.  Read between the lines:

Turn around projects are easy, fast, and cheap 🙂

Anyway, I went to see my commercial lender last week.  The company account into which I deposit my rents happens to be in his bank, which by the way is not an accident.  This is a bit off topic, but pay attention:

Finance is a relationship business – it doesn’t hurt to have a few bucks on deposit with the bank if you’re gonna ask them for money; just sayin…

The banker’s office is down the hallway from the tellers in such a way that he can see who is coming and going through the glass door.  Well, when I came in I was smiling; I know I was – I remember the feeling.  I had 100% occupancy in the month of October for the first time since March.  I made good money in October and I was on my way to deposit it in my account – good times!

On My Way Out I Stopped By His Office

Him:   You want some money?

Me:     No, why?

Him:   The way you are smiling – you got me worried…

Me:     Dude – no way.  I’m tired.  I’m not looking for a deal.  This 10-plex has been a pill…

And I went into a long-winded description of what I’d been up to since we saw each other about 5 months ago.  Well – as I am telling him about all of the movement among the tenant base, he gets this look on his face and interrupts to tell me the following:

Two years ago all of you guys were coming in here telling me that you are running at full capacity – all of you.  And now?  You must be the 5th guy in two months coming in here and moaning about vacancies everywhere…

This made me think, which can be dangerous…

My Friend Danny

I left my banker’s office and I called my friend Danny.  OK – his name is not Danny, but while I can’t tell you his real name, I can tell you that he owns close to 600 units around these parts, which makes him a big shark.  In a market like ours, Danny pretty well defines the market.  With so many units in such proximity, he not only has his pulse on every minutia of the marketplace, but he really does make the market to some extent.  Therefore, if I happen to want to know the current vacancy rate in a particular local sub-market, who do I call?  You got it – Danny.

Off topic again, but do you know Danny?  I don’t mean my Danny; do you know a Danny – your Danny?  Who do you ask questions – get it?

Well – guess what Danny told me?  Danny, it turns out, is running about a 9% vacancy rate.  How many vacant units is that if you own 600?  He is still making good money, lots of money – trust me.  But, a year ago his vacancy rate was half of that, and he was absolutely killing it!

Talking To Patrisha

So, I go through the rest of my day, impressed by what I heard, and after dinner I tell Patrisha (my wife.)  Question – have you noticed that girls are more intuitive than boys?  Another question – have you noticed that they have more common sense than boys?  Well – my Patrisha does, and as I’m telling her all about everyone experiencing higher vacancy rate, she says to me:

“Sounds like people are moving a lot.”

WOW – I don’t know why, but this was amazing.  I spend my days playing with ROIs, CAP Rates, and Vacancy Factors, and I am jaded by all of that to such an extent that I can’t see simple truth.  “People are moving a lot”…

Why Do People Move?

People move a lot for one of two reasons.

Either they are downsizing because they can’t afford the life they have, or they are feeling good about their chances and are upgrading.  “People are moving a lot” – that’s a symptom indicative of something.  But what?  This could have huge ramifications for all of our businesses indeed!

The Question For You…

So, my question to the BP Nation is as follows:

Have you noticed a jump in vacancy factor in your area, and if so, do you see it as a good economic indicator or bad?

Let’s talk about it and see if we can formulate a cohesive hypothesis…
Photo Credit: Paolo Margari