Does 0% Vacancy Sound Fun?

Question

What seems more appetizing to you?

- SMF, 200-300k, in C- to C+ area , immediate cash flow (5-8% ROI), 3% appreciation/year, and 5% Vacancy

- SFH/SMF, 400k+, in B+ to A- area, break even (for the first year), 6% appreciation/year, and 0% Vacancy (EVER, unless you want it)

What seems like the better investment to you?

Theresa Harris · Answer

There is no such thing as 0% vacancy for a home as you will often have a short gap between tenants (unless you mean 0% vacancy for the area).  I'd go with the second option.  You are more likely to attract better tenants.  Some of the cheap units look great on paper, but the real numbers are very different.

Kai Kopsch · Answer

Tenants in B+ to A- class neighborhoods tend to stay for longer durations compared to those in C class neighborhoods. This could be attributed to the higher quality of life, better schools, and overall satisfaction with the living conditions in the more upscale areas and there is no thing like 0 vacancy.

Marcus Auerbach · Answer

We have our own team, this would not be possible with a regular PM. You can't expect that to be fair. Nobody watches your money like you do. The steps are basically the same, but it takes that little extra effort and planning to make it happen. And it does not work every single time, life throws you curve balls. Another component is that we typically have tenants who stay for many years. We provide for example finished basements for that exact reason - not because it yields more rent, but because tenants stay longer. Video in my bio. Turn over is the largest expense we have - it costs us about $5,000 on average and so we do everything we can to avoid it.

Marcus Auerbach · Answer

You can absolutely run a property on zero percent vacancy! That's pretty much how we roll. You just start showing it a month before it becomes vacant. It is also possible to handle a turnaround in 2 days including paint and carpet. Is it easy? No, but it is possible. The only longer vacancies we have are more extensive remodels.

Newer investors will opt for option 1 for a number of reasons. Cash flow, CoC-return, limited capital, etc. Long term, option 2 produces significantly more wealth over time. Just plug the numbers into the BP calculator.

We have a very similar price structure in Milwaukee and we opt for higher rent assets in B areas.

Jonathan Greene · Answer

You are asking if we like store-bought cake or cookies that are really good. We don't really believe they will be really good because they are from the supermarket. What's the point of the question? Are you weighing these as options?

I agree with @Theresa Harris that there is no such thing as 0 vacancy and your numbers are too strict to be real. We don't know what appreciation will be. You have to focus on the asset.

Denis Ponder · Answer

Starting out, I'm going option 1 to get in the game and learn what I don't know.  I get all the reasons against that, but that's how my mind works, and I can be stubborn.  :)

Now, as I move forward, I'm shifting to option 2 for sure, or balancing my portfolio with more of these types of plays.  But, you need some reserves and it costs more to buy in at this level.  So, it's not where everyone can or will start.

V.G Jason · Answer

The B+ to A- area one, forget the vacancy rate. That's just gravy. The appreciation and B+/A- area being under nat'l median household price is a win.

Focusing on the vacancy and if 0% is true or not is just missing the forest for the trees. Cincinnati ain't my type of area, but the characteristics of this is very how much I would employ capital. Personally, I negotiate for better price/seller credits + put more money down to min 1:1 DSCR and keep it gucci.

Joe S. · Answer

Not sure who the Property Manager is or if it’s you on a 0% vacancy. Property managers over in  our direction don’t even get vendors out to do bids for a week or two after the vacancy.😢

V.G Jason · Answer

If you like it, why do you care about my opinion clearly you have already sought out what you'd do and think is best.

I'd stick to all Class A, but each deal comes as it does. So if I can grab upper class B at a better value, then sure I'll reach for it. I just don't think because it's cheap(say lower B, and C class) outright that it means it's valuable.

In a high(er) debt environment, less is more.

V.G Jason · Answer

Because equities and real estate aren't the same thing. Physical assets are a different animal.

If you're not really familiar with equities, but you want to exposure to gain something that'll appreciate in value then sure go spread yourself around and buy a lot of funds, stocks, and make sure you aren't allocating more than 3% or 5% or whatever dumb allocation folks have anywhere.

If you're not familiar with real estate, I wouldn't recommend that same line of thinking. If you're investing in real estate, it's better to really study it then actually go deeper, not wider, and keep it trim. Efficiencies of scale, debt mechanisms, etc., will tell you to operate differently. Today's world will benefit those with quality over quantity. I'd take 10 excellent properties in Nashville over 40 regular properties in Cleveland.

But to touch on the earlier point, physical asset investing under the nature of debt, efficiencies of scale, tax benefits/drawbacks, and the power of delegation before you dip your toes in. Equities wise understand expense ratios, tax implications with capital gains, dividends, liquidity, and exposure.

Does 0% Vacancy Sound Fun?

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