I Have A Question For You About Your Vacancy Problem…

by | BiggerPockets.com

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:

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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

About Author

Ben Leybovich

Ben has been investing in multifamily residential real estate for over a decade. An expert in creative financing, he has been a guest on numerous real estate-related podcasts, including the BiggerPockets Podcast. He was also featured on the cover of REI Wealth Monthly and is a public speaker at events across the country. Most recently, he invested $20 million along with a partner into 215 units spread over two apartment communities in Phoenix. Ben is the creator of Cash Flow Freedom University and the author of House Hacking. Learn more about him at JustAskBenWhy.com.


  1. Assuming low income housing and small units: Welcome to your future.
    This is the main reason you don’t want to much leverage in low income, no leverage that can effect your personal assets is best.

    Next you thank the authors of this economy that does not leave an scraps for the little people.
    We’ll, give free food, healthcare, childcare, a few pennies to think they are well paid for their vote. But they will be penniless and impoverished for accepting the status quo.

    Lately it has not been a good feeling knowing my profits are so dependent on the crumbs falling off the table of the politician. This is the government we all want I am assuming.

  2. I haven’t had many tenants leave lately, but I haven’t had a rent increase from existing tenants. I also just purchased a half vacant building and was trying to get higher rents. This hasn’t worked for me, although it seems that every other landlord in the area is bragging about getting higher rents. Mine are nice units in a good area, so I don’t know if it’s that I’m too picky when I qualify tenants or if they’re just getting higher rents for a few months and eventually evicting poorly-qualified tenants. Regardless, I’d rather lower my rates than the quality of my tenants.
    As for keeping your money in the bank you borrow from – be careful. If you have a line of credit, read the language in the loan. The one I have gives them the right to call the loan at any time and take the money out of my other accounts for payoff. This exact thing bankrupted many businesses during the recession because they ended up with no working capital. I have three banks that I work with and have very good relationships, but they answer to somebody who might not have my best interests in mind.

    • Ben Leybovich

      Thanks for the good info Amy!

      Mine is cash business – no cash / no spend. I’ve been close a couple of times 🙂
      You’ve given me good topic for an article though, because similar kind of trouble can happen on a refi.

      Thanks so much!

  3. Ben:

    We’ve been fortunate in that we have 99% occupancy – there is one vacant room in our international student house. We have also been booked in advance – like Al Williamson, I’m trying to cultivate a waiting list for some of our properties.

    That said, I see far more vacancy signs in “universityville” than normal after the start of the fall term and ~300 new units came on-line in our local market this year. I have no illusion we will be immune from this – our turn will come. Our strategy to play a long game: like you, we are repositioning with the goal of overcoming “people moving a lot” – our target to move the median tenancy to be 3-years. We have been renovating our buildings to make them more energy efficient, yet doing so in a manner that allows us to remain just below market rent. We have also begun a project to introduce water sub-metering into all of our multi-unit properties; moving accountability for that last of landlord paid utilities into the hands of the tenant.

    In our student properties, where the clientele is inherently transient, we are aiming to keep all good tenants for 2-yrs (this would allow us to be 8% below market rent and still retain the same revenue – assuming an optimistic 1-mth vacancy for turnover). Here we have introduced add-on services which appeal to students: Internet in all buildings, a “take me home” card that can be used with a local cab company to ensure a safe way home from a night on the town, furnished units for our international students, etc.

    I see us evolving from being a classic “landlord” to more of a housing service provider. Especially with this new generation of students who seem less inclined to forge their own path and more willing to spend a little more of Mom & Dad’s hard work to have things brought to them (pampering if you will).

    • Hi Roy,

      I have a 4 unit building that is master metered for water and I am wondering if you have any advice or cost estimate that you might be able to share with me. I would love to re-pipe my property, which is about 45 years old, and transfer water payments back to the tenants.

      Thank you,

  4. I am seeing the opposite, we are at a all time low for not only my personal properties, but also the properties we manage. We are running about 3%. With all the institutional buying, I would have thought it would have created a surplus of rental homes. What I discovered is that they are doing the bare minimum to make their houses rent ready. So we started making our rent ready’s over the top with ceramic tile in kitchen and baths, granite in a few occasions, nice plumbing fixtures, nice electrical fixtures and ceiling fans, landscaping upgrades, etc. Sure it is costing us more, but we are getting higher rents and quicker occupancy. I think the tenant expectation has gone up in the past couple of years. We want to avoid ever hearing again “we are moving because we found a nicer house….”

  5. I’ve seen more turnover in the past year and agree people are on the move. I also see renters relocating for job changes, more now than in the past.

    My view is that we could see a wave of movement in the next decade. Many have been involuntarily downsized or stuck due to loss of homes and jobs. They’ve been making due with roommates and less than ideal housing.

    If the economy continues to improve, people will make changes. Those who lost homes will repair credit and buy again. People stuck in too small homes will move up. People who’ve outgrown large homes will have more confidence to sell. Younger people will buy entry-level homes.

    On a macro level, the population is growing and the number of housing starts hasn’t kept up.

    This is good for the real estate industry, a mixed bag for landlords.

    I’m optimistic. There will always be a market for rental housing, especially quality product with competitive rents. But watch for: interest rates, job growth, entry-level buyers with student debt, etc. All will have an impact.

    • Ben Leybovich

      Hey Susan,

      I agree. I think that people at the bottom are moving up because Section 8 covers part of their rent allowing them to afford mid-range units. At the same time, people in the middle are shifting for job. In general I would say that people are feeling better – though obviously there is nothing to feel better about…

      They will be shocked soon… Thanks so much for your comment Susan!

  6. I started buying single family homes (mainly town homes and condos) in 2008 and now own and manage 20 of them. I have yet to have a vacancy. This past year I had 6 units turn over but I managed to get the tenants out and new tenants in the same day. Thankfully my tenants have been very good about making the property ready for the new tenants

  7. Interesting comments, do most of you start advertising before your tenants move out? Also do you automatically start leases with min of year or do you do month to month? My take on month to month at beginning of lease is in case your tenant screening fails. I find its easier to terminate and vacant the apartment and after 3month I offer a 1 year. Whats your take on this?

  8. I think we are starting to see the emergence of generation Y. I fall in this bracket and that is the spoy I have seen movement. I have had 10 days of vacancy (asked a long term tenant to leave and have to upgrade unit this september) since fall of 2009 when I had 7 days with similiar circumstances over 10 units. Both were generation Y that moved in and out. I get queries for openings regularly and almost all in that age range. This is a larger age group that is now starting to establish itself after the delay of the recession. Families are forming and people are moving out of there parent’s basements. They have seen wht challenges face them going forward and have come to accept them with time. They now decide that life cannot be waited for thy must go live it. This generation is also getting more access to career advancement as the boomers retire which increases their options. Living in Wisconsin, we have lots of manufacturing jobs and they are starting to open up for many. Especially for those folks withoit a specialized college degree they are coming to the point where they have the opportunity to get a decent paying job in this arena but that means saying goodbye to their old lifestyle a little bit. More and more folks are willing to make that transition.
    Of course I could be way off with my narrow perspective. Something good tonthink about.

  9. A couple things at play… Demographics tend to be dynamic and move with the economy as they should. The challenge is to track this well and acquire/market your portfolio accordingly. I have been lucky to have long term leases on most of my units which allow a ride through of sorts during these waves of changes and lucky enough to have acquired them in areas of moderate growth near to schools, hospitals, large chain stores…

    I really like Roy’s marketing philosophy and is something I have been thinking about. What low cost features can I implement to better attract and retain tenants. Like a coffee shop in a book store or free WiFi at a restaurant etc. It is time to be creative

    • Yes – it is nice to own units that exhibit the type of desirability which helps keep tenants in there long-term. Some of this is universal but some things are market-specific. Good for you to have cracked that code 🙂

      Thanks for reading Ryan!

  10. Ben,

    It sounds like you are having a transitional period in your area. The question about vacancy is as simple as supply and demand. The fact that you are having lots of turnover is not necessarily related to vacancy.

    Your question; “is higher vacancy good or bad”, depends on if you are a property owner looking for price appreciation or a buyer (looking for a good deal), or a landlord.

    I would say that since you are a landlord Vacany is not a good factor for you. Either the supply of rental housing has increased or the demand for rental housing has decreased. Either way you will need to make adjustments to your product (which it sounds like you have) in order to keep your units full.

    Have you considered implementing a tenant retention program?

    • Hi Steven –

      I am not sure what we are experiencing just yet – I have to watch it for a while. The normal tern-over for me is about 3%, not counting the 10-plex which I’m stabilizing. I’ve been at 100% for the past 2 months – hopefully good sign. I just came out of a freaking storm, but this was me not the marketplace. We’ll see 🙂

      Thanks so much for your comment indeed!

  11. I work rentals in 2 distinct markets.
    Locally I’m on by best run ever. 100% occupancy with 75% in the longest consecutive tenancies I’ve had in the units. All are also at or above the highest rent they have ever had.
    My 2 shortest are both section 8 that happened to renew this month, both with $50 rent increases. Liking the local stuff right now!

    The other market I’m still new enough in (just under 1.5 years) that I don’t have a great feel. Several places took a long time to initially fill but have gotten top of market rents and solid payers without much trouble. My nicest house is currently vacant and I fear will be through the winter. That happened last year.
    Fyi Ben this market is closer to you (Ohio border of PA).

    • Hey Shaun – good for you!

      I ran 100% last month as well. And this month I am doing even better at 103% occupancy – thinking about writing an article on this 🙂

      But, the past 5 months had been rough indeed, mostly because of the repositioning

      Thanks so much for your comment!

      • Actually to clarify locally I have been at 100% for the last 12 months!

        Now it isn’t a ton of units, but there is only one other time I think I had all my places here rented for at least 12 months straight (and that was with less units and lower rents).
        Might not ever have happened before actually, I’d have to check but it might have only been 11 and definitely never more than 14 (as before now one place never had one last more than that).

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