How do you handle a long vacancy (2+ months)?
Member since 2022 · 9 posts · 4 votes
How do you handle a long vacancy (2+ months)?
Most Popular Reply
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
2yHigh rent properties tend to be harder for us to rent than others because there are fewer people looking to rent in that price range than just buy. (And for us, higher rent is generally anything over $2000.)
So it might just be that. Normally I'm not a fan of selling, but I would ask if this property cash flows. If not, it very well might be worth selling.
If you want to hold, obviously the big thing you can do is lower the price which we try to do regardless of how we feel about it on a semi-fixed schedule (we'll slow down lower prices if we're getting lots of showings for example). Not a lot you can do about location or the neighbors.
It would also be worth doing another walk through of the property. Is there something aesthetically that's turning people off? Faded paint? Dated flooring? Unfinished repairs? Overgrown lawn? In that price range, people want it to shine so that might be an issue.
26 Replies
- Member since 2024 · 1k+ posts · 351 votes2y
Where are you advertising? Do you have a good and dedicated PM
- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes2y
@Jill Hutson, vacancy and turnover costs are EXPENSIVE especially if you are an out of town landlord paying an agent/PM for tenant placement.
Here are some things I think about with regard to this issue.
1. Market rent: I don't look at market rent as 1 single number that I want to meet or exceed. Quite the opposite. I think of it as a range of rental prices of comparable properties and my goal is to make a good return on the lower end of that range of values.
For example, if you identify market rent for a unit as $3,000, I might be thinking of it has $2,600-$3,400. I might want to rent my unit out for $2,650-2,700 if I can make a decent return at that.
2. I think carefully about the value proposition I am offering a tenant. I look for opportunities to offer MORE for a tenant but I look for low hanging fruit in this regard. What is this property best suited to offer.
For example, the layout of one kitchen might lend itself to adding a dishwasher easily. Another house might be a single family home with a fenced yard and LVP flooring and be more suitable for allowing pets.
3. By offering a BETTER value proposition at a lower than average price a tenant is VERY hard pressed to have a motivation to move and to be able to find a comparable property for similar rent.
So, if I budget 5% for vacancy, I can readily beat that budgeted estimate.
4. My cash-flow is NOT affected by vacancy! That sounds crazy, I know but it depends on how you view cash-flow. I view it as the money I can pay myself. So, I don't just factor in hard expenses like mortgages, taxes, insurance, utilities. I also factor in soft budgeted expenses like cap ex, maintenance, and vacancy.
For example, if I had a $3k rental and the hard expenses were $2,200 you might view this as $800 cash-flow positive, but I am going to budget maybe 15% for those soft expenses and my cash-flow would be $350 per month. The difference is that as long as I am managing those soft expenses well my number is solid and consistent. With your estimate, you might earn $800/month for 2 years and then incur a vacancy at the same time as you need a roof replacement and for that tax year your cash-flow might be -$1,200/month.
I prefer my method because with the $800/month estimate you might buy a property believing its a great deal, BUT sell it after several years having made negative cash-flow. I view the soft expenses as things that WILL happen and so the money is accounted for when its received even though it isn't spend on a monthly basis much like how taxes and insurance are often escrowed.
5. If I was going to improve on one thing, I could certainly tighten up my turnover process and make units ready to rent again a little faster or even advertise a little ahead of when they are ready. I might be able to lessen my average turnover time from ~5 weeks to maybe ~4 weeks. I have no intention of showing properties before they are vacant at this time. So, I can't see reducing it further. - Member since 2022 · 9 posts · 4 votes2yHi John, we have a dedicated PM. They are a nationwide company and they advertise on their website and Zillow. We have used smaller PMs in the past who did not advertise well. However I have not been a renter in over 10years, so I wonder about how the reputation of a PM is perceived by potential tenants. Do they prefer to work with smaller PMs or larger PMs? Other factors to consider?
Quote from @John Mason:
Where are you advertising? Do you have a good and dedicated PM
We listed the property on August 1st. There are about 7 SFH in the surrounding 2 mile radius, all about the same size (3-4 bedrooms), and all listed around the same price ($2500-3100). There are also many townhomes and apartments listed in the surrounding area.
Open to any feedback you have! - Member since 2024 · 1k+ posts · 351 votes2y
Sometimes Local PMs are better as they are more dedicated than national ones which tend to be very busy and not focused on you
- Member since 2022 · 9 posts · 4 votes2yKevin, thank you for this thorough response! These are helpful considerations. How long do you wait out a market if there is a decline in rental prices before cutting your losses?
Quote from @Kevin Sobilo:
@Jill Hutson, vacancy and turnover costs are EXPENSIVE especially if you are an out of town landlord paying an agent/PM for tenant placement.
Here are some things I think about with regard to this issue.
1. Market rent: I don't look at market rent as 1 single number that I want to meet or exceed. Quite the opposite. I think of it as a range of rental prices of comparable properties and my goal is to make a good return on the lower end of that range of values.
For example, if you identify market rent for a unit as $3,000, I might be thinking of it has $2,600-$3,400. I might want to rent my unit out for $2,650-2,700 if I can make a decent return at that.
2. I think carefully about the value proposition I am offering a tenant. I look for opportunities to offer MORE for a tenant but I look for low hanging fruit in this regard. What is this property best suited to offer.
For example, the layout of one kitchen might lend itself to adding a dishwasher easily. Another house might be a single family home with a fenced yard and LVP flooring and be more suitable for allowing pets.
3. By offering a BETTER value proposition at a lower than average price a tenant is VERY hard pressed to have a motivation to move and to be able to find a comparable property for similar rent.
So, if I budget 5% for vacancy, I can readily beat that budgeted estimate.
4. My cash-flow is NOT affected by vacancy! That sounds crazy, I know but it depends on how you view cash-flow. I view it as the money I can pay myself. So, I don't just factor in hard expenses like mortgages, taxes, insurance, utilities. I also factor in soft budgeted expenses like cap ex, maintenance, and vacancy.
For example, if I had a $3k rental and the hard expenses were $2,200 you might view this as $800 cash-flow positive, but I am going to budget maybe 15% for those soft expenses and my cash-flow would be $350 per month. The difference is that as long as I am managing those soft expenses well my number is solid and consistent. With your estimate, you might earn $800/month for 2 years and then incur a vacancy at the same time as you need a roof replacement and for that tax year your cash-flow might be -$1,200/month.
I prefer my method because with the $800/month estimate you might buy a property believing its a great deal, BUT sell it after several years having made negative cash-flow. I view the soft expenses as things that WILL happen and so the money is accounted for when its received even though it isn't spend on a monthly basis much like how taxes and insurance are often escrowed.
5. If I was going to improve on one thing, I could certainly tighten up my turnover process and make units ready to rent again a little faster or even advertise a little ahead of when they are ready. I might be able to lessen my average turnover time from ~5 weeks to maybe ~4 weeks. I have no intention of showing properties before they are vacant at this time. So, I can't see reducing it further. - 2yMilton ChamberlainPro MemberReal Estate Agent · Kansas City, MO · Member since 2019 · 235 posts · 107 votes
If you listed in July, and got no bites last two months, it is not timing. IMO
Speaking anecdotally here; I had 2 clients this time last year rent out SFR both in Northland, both in Staley HS district. one was a tighter sq foot 3 bed 2 bath traditional split. They struggled to place a tenant @ $1900, and were hyper focused on high credit scores (>680) and income.
Another had a 3 bed 2 bath more spacious home a bit more South, but still in Staley HS area. He easily placed a tenant at $2000+/month.
His Screening parameters were not as restrictive. do you need to adjust your screening parameters? Obviously, dont put an unqualified person in there, but with record credit card debt in America, and a worsening recession on the horizon, one can expect much worse credit scores across the board vs 5 years ago.
I have struggled to place tenants in my properties before, and have fixed the issue by adjusting my screening parameters.
My only other advice would be mgmt companies. Not throwing shade! Im sure yours are swell. But they are generally entry level younger people at a boring job. if you havent been 'encouraging' them with daily communication, I would encourage you to do so with with your point of contact. they may not be doing the necessary follow up needed to get a tenant in the home. and you inquiring everyday will most likely encourage them to do the necessary follow up. Or do their job and come up with a new strategy to get qualified tenants in.
I know quite a few people in the property mgmt, and there are certainly some great ones, but also ALOT of lazy ones, just like in many different service industries. particularly with larger companies with lots of employees - Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes2y
Quote from @Jill Hutson:
Kevin, thank you for this thorough response! These are helpful considerations. How long do you wait out a market if there is a decline in rental prices before cutting your losses?Quote from @Kevin Sobilo:
@Jill Hutson, vacancy and turnover costs are EXPENSIVE especially if you are an out of town landlord paying an agent/PM for tenant placement.
Here are some things I think about with regard to this issue.
1. Market rent: I don't look at market rent as 1 single number that I want to meet or exceed. Quite the opposite. I think of it as a range of rental prices of comparable properties and my goal is to make a good return on the lower end of that range of values.
For example, if you identify market rent for a unit as $3,000, I might be thinking of it has $2,600-$3,400. I might want to rent my unit out for $2,650-2,700 if I can make a decent return at that.
2. I think carefully about the value proposition I am offering a tenant. I look for opportunities to offer MORE for a tenant but I look for low hanging fruit in this regard. What is this property best suited to offer.
For example, the layout of one kitchen might lend itself to adding a dishwasher easily. Another house might be a single family home with a fenced yard and LVP flooring and be more suitable for allowing pets.
3. By offering a BETTER value proposition at a lower than average price a tenant is VERY hard pressed to have a motivation to move and to be able to find a comparable property for similar rent.
So, if I budget 5% for vacancy, I can readily beat that budgeted estimate.
4. My cash-flow is NOT affected by vacancy! That sounds crazy, I know but it depends on how you view cash-flow. I view it as the money I can pay myself. So, I don't just factor in hard expenses like mortgages, taxes, insurance, utilities. I also factor in soft budgeted expenses like cap ex, maintenance, and vacancy.
For example, if I had a $3k rental and the hard expenses were $2,200 you might view this as $800 cash-flow positive, but I am going to budget maybe 15% for those soft expenses and my cash-flow would be $350 per month. The difference is that as long as I am managing those soft expenses well my number is solid and consistent. With your estimate, you might earn $800/month for 2 years and then incur a vacancy at the same time as you need a roof replacement and for that tax year your cash-flow might be -$1,200/month.
I prefer my method because with the $800/month estimate you might buy a property believing its a great deal, BUT sell it after several years having made negative cash-flow. I view the soft expenses as things that WILL happen and so the money is accounted for when its received even though it isn't spend on a monthly basis much like how taxes and insurance are often escrowed.
5. If I was going to improve on one thing, I could certainly tighten up my turnover process and make units ready to rent again a little faster or even advertise a little ahead of when they are ready. I might be able to lessen my average turnover time from ~5 weeks to maybe ~4 weeks. I have no intention of showing properties before they are vacant at this time. So, I can't see reducing it further.Since, I aim on the lower end of market prices, I have NEVER had to lower my prices! lol.
I believe I make MORE money by charging less in large part because of the reduced vacancy.
If you can keep tenants on average a couple extra years and basically eliminate a 2 month turnover you have gained 2 months rent. So, with your $2800/month rental that is $5600. Over 4 total years of tenancy that means if you charged $100 less you are still $800 ahead PLUS the cost of the actual turnover (refreshing the place, paying an agent fee, etc).
- Member since 2024 · 4 posts · 1 vote2y
Jill,
I have owned 13 rentals in the kansas city metro area for years and own my own handyman company. I have some recommendations on a local PM as I know a ton of them in town. If you want to shoot me a DM I am happy to help point you in the right direction.
Jason
- Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes2y
What sub market/town neighborhood is this in? If this is in a build to rent location it may be where builder got them rented at a very high price because are brand new but now when it comes time to fill it is very difficult to find that tenant. Won't solve your issue but looking to multifamily can help reduce your vacancy risk here in KC. You can do this through a 1031 exchange and still defer your gains.
- Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes2yTo answer your question, location. I still have a waiting list for my much higher priced California properties.
Quote from @Jill Hutson:
We have a few single family homes in Kansas City, in a nicer, brand new neighborhood (built 2022). When we initially bought the homes we were able to lease for $2800-$3200/ month. However we have struggled to rent the homes at that same rate and have come down over 20% on price. Vacancy has killed the cash flow.
What would you say are the biggest factors when leasing a higher price home? Location? Time of year? Property manager reputation?
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes2y
High rent properties tend to be harder for us to rent than others because there are fewer people looking to rent in that price range than just buy. (And for us, higher rent is generally anything over $2000.)
So it might just be that. Normally I'm not a fan of selling, but I would ask if this property cash flows. If not, it very well might be worth selling.
If you want to hold, obviously the big thing you can do is lower the price which we try to do regardless of how we feel about it on a semi-fixed schedule (we'll slow down lower prices if we're getting lots of showings for example). Not a lot you can do about location or the neighbors.
It would also be worth doing another walk through of the property. Is there something aesthetically that's turning people off? Faded paint? Dated flooring? Unfinished repairs? Overgrown lawn? In that price range, people want it to shine so that might be an issue.
- 2yGino BarbaroPro MemberRental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
three reasons why apartments don't rent: Condition, Price, and Marketing, and a fourth can be the leasing agent, although I would tend to lump that into marketing.
If the house is in good shape, and you're on all the platforms marketing it, then it's a function of price.
There has been an oversupply of new inventory coming on line in many markets, and that's why rents have dropped in a lot of the metros.
Unfortunately, it appears you have a pricing issue and you may have to start reducing the price, or throwing in some type of concession
Good luck
Gino
- Member since 2022 · 9 posts · 4 votes1yThanks John
Quote from @John Mason:
Sometimes Local PMs are better as they are more dedicated than national ones which tend to be very busy and not focused on you
- Member since 2022 · 9 posts · 4 votes1yHi Gino, thank you for the feedback!
Quote from @Gino Barbaro:
three reasons why apartments don't rent: Condition, Price, and Marketing, and a fourth can be the leasing agent, although I would tend to lump that into marketing.
If the house is in good shape, and you're on all the platforms marketing it, then it's a function of price.
There has been an oversupply of new inventory coming on line in many markets, and that's why rents have dropped in a lot of the metros.
Unfortunately, it appears you have a pricing issue and you may have to start reducing the price, or throwing in some type of concession
Good luck
Gino
- Member since 2022 · 9 posts · 4 votes1yHi Andrew, great idea. We’re getting a fresh set of eyes in the property.
Quote from @Andrew Syrios:
High rent properties tend to be harder for us to rent than others because there are fewer people looking to rent in that price range than just buy. (And for us, higher rent is generally anything over $2000.)
So it might just be that. Normally I'm not a fan of selling, but I would ask if this property cash flows. If not, it very well might be worth selling.
If you want to hold, obviously the big thing you can do is lower the price which we try to do regardless of how we feel about it on a semi-fixed schedule (we'll slow down lower prices if we're getting lots of showings for example). Not a lot you can do about location or the neighbors.
It would also be worth doing another walk through of the property. Is there something aesthetically that's turning people off? Faded paint? Dated flooring? Unfinished repairs? Overgrown lawn? In that price range, people want it to shine so that might be an issue.
- Member since 2022 · 9 posts · 4 votes1yThanks for the feedback Milton. We are looking at all angles now.
Quote from @Milton Chamberlain:
If you listed in July, and got no bites last two months, it is not timing. IMO
Speaking anecdotally here; I had 2 clients this time last year rent out SFR both in Northland, both in Staley HS district. one was a tighter sq foot 3 bed 2 bath traditional split. They struggled to place a tenant @ $1900, and were hyper focused on high credit scores (>680) and income.
Another had a 3 bed 2 bath more spacious home a bit more South, but still in Staley HS area. He easily placed a tenant at $2000+/month.
His Screening parameters were not as restrictive. do you need to adjust your screening parameters? Obviously, dont put an unqualified person in there, but with record credit card debt in America, and a worsening recession on the horizon, one can expect much worse credit scores across the board vs 5 years ago.
I have struggled to place tenants in my properties before, and have fixed the issue by adjusting my screening parameters.
My only other advice would be mgmt companies. Not throwing shade! Im sure yours are swell. But they are generally entry level younger people at a boring job. if you havent been 'encouraging' them with daily communication, I would encourage you to do so with with your point of contact. they may not be doing the necessary follow up needed to get a tenant in the home. and you inquiring everyday will most likely encourage them to do the necessary follow up. Or do their job and come up with a new strategy to get qualified tenants in.
I know quite a few people in the property mgmt, and there are certainly some great ones, but also ALOT of lazy ones, just like in many different service industries. particularly with larger companies with lots of employees - Member since 2022 · 9 posts · 4 votes1yThanks Jason
Quote from @Jason Waldo:
Jill,
I have owned 13 rentals in the kansas city metro area for years and own my own handyman company. I have some recommendations on a local PM as I know a ton of them in town. If you want to shoot me a DM I am happy to help point you in the right direction.
Jason
- Member since 2022 · 9 posts · 4 votes1yHi Alex, we are in Parkville. We love the schools in the area. Are you familiar with the area? Any thoughts on leasing in that market?
Quote from @Alex Olson:
What sub market/town neighborhood is this in? If this is in a build to rent location it may be where builder got them rented at a very high price because are brand new but now when it comes time to fill it is very difficult to find that tenant. Won't solve your issue but looking to multifamily can help reduce your vacancy risk here in KC. You can do this through a 1031 exchange and still defer your gains.
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes1y
Quote from @Jill Hutson:
Hi Andrew, great idea. We’re getting a fresh set of eyes in the property.Quote from @Andrew Syrios:
High rent properties tend to be harder for us to rent than others because there are fewer people looking to rent in that price range than just buy. (And for us, higher rent is generally anything over $2000.)
So it might just be that. Normally I'm not a fan of selling, but I would ask if this property cash flows. If not, it very well might be worth selling.
If you want to hold, obviously the big thing you can do is lower the price which we try to do regardless of how we feel about it on a semi-fixed schedule (we'll slow down lower prices if we're getting lots of showings for example). Not a lot you can do about location or the neighbors.
It would also be worth doing another walk through of the property. Is there something aesthetically that's turning people off? Faded paint? Dated flooring? Unfinished repairs? Overgrown lawn? In that price range, people want it to shine so that might be an issue.
Thanks Jill, I hope it helps. Good luck!
- Investor · Austin, TX · Member since 2017 · 107 posts · 89 votes1y
Generally, lower the price.
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes1y
I work on the north side of Chicago so its a differant market but here when a rental is priced right we typically have atleast 3 apps in the first week. If a listing is up even 2 weeks it means its time to drop the price.
- Investor · DC Metro · Member since 2017 · 32 posts · 9 votes1y
I'm not too familiar with your market, but i was in a similar situation in the DC metro and pivoted from renting/leasing to rent-to-own (lease option).
i got the place occupied in no time with above market rent, passed on any trivial repairs to the tenants, and collected a significant option fee.
The option fee is magical! The tenants have skin in the game so wont mess up (e.g., not pay rent).
I'm sure you'll get it rented soon; but just wanted to share an outside-the-box option that was successful for me.
-KA
- Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes1y
I think the issue here is being able to understand where this price point falls in the market itself. It sounds like there are several properties that size and age that are being rented in that price point. But the question is how much is rent overall for a typical house there? How big are most rentals compared to the size of your houses.
Two and three years ago people were flush with covid cash. And the idea of paying a premium to have a really nice and brand new home probably appealed to a lot of people. But for the most part, your typical renter pool of people are people with bad credit and tight finances to where they can't afford to pay for a premium rental like that. So your renter pool is going to be smaller if thats the case.
Again, without know what a typical rental property would go for (3bed, 2bath, 1500 sq ft) in your area, its hard to even guess what the issue might be.
In terms of how you solve the problem - because its clearly a problem - thats another story. To me, the market has spoken and there just aren't many people in the area wanting to pay that kind of price for a rental property. Most landlords have a 3x rule on income which means at 3k a month for your rent, the tenant would have to have an income of 90k a year or more.
If somebody was making 90k or 100k a year, I gotta think most of them would likely be buying a home instead of renting. And if they were renting, I gotta think they'd be looking to buy a home eventually and they'd know they'd need to pay less for rent so they could save money to buy.
One thing you could consider is possibly looking at furnishing it and making it an STR or MTR. Your only other option that I can see is to lower your price. I don't think property management is a factor at all. Most areas have zillow and facebook groups where everybody goes to in the area to find whats available to rent. And renters don't really care who is managing it.
Maybe consider adding an amenity to set yourself apart. How about adding a hot tub? The new construction feel might be gone even though its only been a few years so maybe something like that would bring a buzz back to it again. Otherwise, you really have no choice but to drop the price even more. - 1yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Jill Hutson nationwide, days on market for rentals (DOM) are pushing an average of 50 days.
ZIllow is the #1 site to advertise rentals, but there are many more.
We publish to 30.
FYI - there website is not doing anything.
Question: how much are you paying them for a Placement Fee?
-We've seen many flat fee and national companies charging small amounts that do NOT allow a PMC to advertise a rental on the MLS and have every agent out there being exposed to the property. So, you may want to pay more for more exposure.
Logical Property Management4.9458 Reviews - Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes1y
In higher priced areas, your tenant pool will be smaller. Not as many “qualified” tenants to choose from. So it will likely take longer to rent. Don’t settle in your requirements. Cheaper in the end to find that qualified tenant than to have to evict an unqualified one. If your KC market is anything like mine here in Houston, someone who can afford that monthly rent range is likely a homeowner, not a renter. I would definitely recommend working with a PM or leasing agent that caters to a higher-end clientele. Doesn’t have to be million dollar listing style, but just a step above the run of the mill.
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