Is zero percent vacancy bad?
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Rental Property Investor · Apex, NC · Member since 2015 · 197 posts · 102 votes
8yYou have asked two different questions. Is zero % vacancy bad? Well I'd depend on you? Yes it usually means your rent is low which means you could be making more so in that sense it is bad. However it also means your not dealing with turn over or the lost rent or little bit of extra work from that. So it comes down to you. Usually some older investors don't mind the lower rent as it's less work. Me I would do my market research. Which brings us to your next question.
How do you know how much to charge? The market dictates. Do your research, start with rentometer.com then check local listings, make sure to compare apples to apples. Do you have more ammenities then them? Charge more, less ammenities- charge less.
28 Replies
- Rental Property Investor · Apex, NC · Member since 2015 · 197 posts · 102 votes8y
You have asked two different questions. Is zero % vacancy bad? Well I'd depend on you? Yes it usually means your rent is low which means you could be making more so in that sense it is bad. However it also means your not dealing with turn over or the lost rent or little bit of extra work from that. So it comes down to you. Usually some older investors don't mind the lower rent as it's less work. Me I would do my market research. Which brings us to your next question.
How do you know how much to charge? The market dictates. Do your research, start with rentometer.com then check local listings, make sure to compare apples to apples. Do you have more ammenities then them? Charge more, less ammenities- charge less.
- Lender · Scottsdale, AZ · Member since 2017 · 106 posts · 75 votes8y
Everyone's hope is that they will never have a vacancy so job well done. An important question to consider as well is how the tenant keeps up the property. Is an extra $100 a month worth the risk of having a tenant who puts holes in walls etc...?
To see if you are on par with others, do a search in the area for a rental of the same size. You should be able to realize a general margin from high to low. See where you are comparatively.
If you are realizing profit every month and the tenant is sound then I think the goal is accomplished overall. Perhaps time to start looking at the next property and getting to the same position. Sounds like you are in good.
- 8yNed J.Pro MemberInvestor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
General rule of sales.....if you NEVER get any pushback on your prices being too high, you are WAY under priced.
Market dictates price and demand...... there are plenty of markets that have very high rent and very low vacancy because that market can support it.
Do your research.....local adds on Zillow, Craiglist, rentometer, local PM's...lots of info.....I generally try to stay just a tad below market to increase my pool of applicants, increase my chances of getting a good tenant and then plan of slowly increasing rent over the years if the market can support it
Its is a balance..... turnover can cost $$...... but being underpriced can cost you more sometimes...
- 8yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
@Adam Webb I fully agree with @Michael Badin.
You can always do moderate price increases if you are behind on market rents.
You will get tenants that get comfortable and don't want to move. You have to do 3 to 5% annual rent increases or market rents will leave you behind.
- Provo, UT · Member since 2018 · 19 posts · 2 votes8y
This is amazing feedback thanks everyone. You’re right @Michael Badin for me the past few years being super busy with my job and needing to spend as little time as possible on my real estate business, less headache has been a good exchange for slightly less profits.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
don't look a gift horse in the mouth... bird in the hand etc etc. etc.. TURN OVER kills landlords
for me if I get a tenant who is good ( when I had tenants) I NEVER raised rents longevity and consistent payments over years of tenancy will beat turn over and raising the rent 20 bucks every time.. plus the simple hassle factor.. that's worth more to me than a few hundred bucks.
- Rental Property Investor · Huntsville, AL · Member since 2013 · 419 posts · 323 votes8y
Originally posted by @Jay Hinrichs:
don't look a gift horse in the mouth... bird in the hand etc etc. etc.. TURN OVER kills landlords
for me if I get a tenant who is good ( when I had tenants) I NEVER raised rents longevity and consistent payments over years of tenancy will beat turn over and raising the rent 20 bucks every time.. plus the simple hassle factor.. that's worth more to me than a few hundred bucks.
I raise rents every year on every property and average 3-5 years on my rentals(SFRs).
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Mike S.:
Originally posted by @Jay Hinrichs:
don't look a gift horse in the mouth... bird in the hand etc etc. etc.. TURN OVER kills landlords
for me if I get a tenant who is good ( when I had tenants) I NEVER raised rents longevity and consistent payments over years of tenancy will beat turn over and raising the rent 20 bucks every time.. plus the simple hassle factor.. that's worth more to me than a few hundred bucks.
I raise rents every year on every property and average 3-5 years on my rentals(SFRs).
if everyone raised rents every year starting 50 years ago rents would be 20k a month.. not sure how viable rent raises every year are.
but to me personally I just like stability and no turn overs.. I had new construction homes and had tenants in there from the day they were built until I sold them 10 years later … but I am busy and rentals are far down my list of things to watch or worry about.
- Rental Property Investor · Huntsville, AL · Member since 2013 · 419 posts · 323 votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @Mike S.:
Originally posted by @Jay Hinrichs:
don't look a gift horse in the mouth... bird in the hand etc etc. etc.. TURN OVER kills landlords
for me if I get a tenant who is good ( when I had tenants) I NEVER raised rents longevity and consistent payments over years of tenancy will beat turn over and raising the rent 20 bucks every time.. plus the simple hassle factor.. that's worth more to me than a few hundred bucks.
I raise rents every year on every property and average 3-5 years on my rentals(SFRs).
if everyone raised rents every year starting 50 years ago rents would be 20k a month.. not sure how viable rent raises every year are.
but to me personally I just like stability and no turn overs.. I had new construction homes and had tenants in there from the day they were built until I sold them 10 years later … but I am busy and rentals are far down my list of things to watch or worry about.
No one says you have to make money or make the most money on your rentals. My one and only point is that I've never experienced lack of tenant longevity due to raised rents.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Mike S.:
Originally posted by @Jay Hinrichs:
Originally posted by @Mike S.:
Originally posted by @Jay Hinrichs:
don't look a gift horse in the mouth... bird in the hand etc etc. etc.. TURN OVER kills landlords
for me if I get a tenant who is good ( when I had tenants) I NEVER raised rents longevity and consistent payments over years of tenancy will beat turn over and raising the rent 20 bucks every time.. plus the simple hassle factor.. that's worth more to me than a few hundred bucks.
I raise rents every year on every property and average 3-5 years on my rentals(SFRs).
if everyone raised rents every year starting 50 years ago rents would be 20k a month.. not sure how viable rent raises every year are.
but to me personally I just like stability and no turn overs.. I had new construction homes and had tenants in there from the day they were built until I sold them 10 years later … but I am busy and rentals are far down my list of things to watch or worry about.
No one says you have to make money or make the most money on your rentals. My one and only point is that I've never experienced lack of tenant longevity due to raised rents.
got it.. I was just thinking if every one raised rents for the last 50 years or so rents would be in the stratosphere.. there are times when I suppose rents just cant be raised..
- Architect · Wenatchee, WA · Member since 2018 · 843 posts · 907 votes8y
You also have to consider what you market is driving. Where I'm at housing is in such shortage that you could rent a cardboard box. Not really but you know what I'm getting at. Almost all MF have waiting lists and most SF never have to advertise to rent because someone the tenant knows is willing to move in before they even move out.
I do agree though that you shouldnt just raise rent each year as a default solution. Consider the comps in your area and the market economy in general. I also agree with Jay. I'd rather loss a little each month to keep a solid good tenant than have turn over every year. That cost alone, especially if you have PM, could cut any gains you would've made by raising rent. - Investor · Pawleys Island, SC · Member since 2015 · 324 posts · 385 votes8y
@Adam Webb I think there is value in being just under market rent as mentioned above as long as you are not astronomically low.
If market rent is $1000 and you are at $950 or $975 as part of your strategy, I think that is fine. You will probably get a bigger applicant pool and find a good tenant faster. If it takes an extra 30 days to find a tenant at $1000, it will take up to a year and a half of tenancy to make up the difference.
If you are crazy low, you are just hurting yourself and your business. If market rent is $1000, and you are renting for $750, you are leaving a lot of money on the table. Additionally, great tenants who know the market rent are going to wonder what's wrong with your unit. Check local ads, rent-o-meter, and census rental rate averages to see if you are priced right.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
@Adam Webb when you say you have no vacancy, is that on one property over two years or 50 properties over 5 years? Regardless of rent amount, vacancy is inescapable at some point. If you own enough properties or own them long enough, you will have vacancy. People move for reasons other than rent amount. In fact, I have never had someone move and give rent amount as a reason. People buy houses, relocate for jobs, need more space for a growing family, etc.
Vacancy can be a huge expense. Landlords forget that a vacant unit has three costs:
1. Lost rents
2. Rehab costs for making the unit rent ready
3. Rerenting costs, whether paying a PM or your own time
It is not uncommon for these costs to total as much as 2X or 3X the total monthly rent. Even if you raise rents $100 a month, it can take years to recoup vacancy expense. So yes, it is way less expensive to keep your unit occupied. Even if you need to keep rent $50 or $100 under market value to hold a tenant, usually the math works out to do so.
Still let me state one more time, tenants usually don't move just because you raise rent so don't assume your low rent is what is keeping the tenant from moving.
- Rental Property Investor · Tupelo, MS · Member since 2018 · 4 posts · 1 vote8yI agree with the comments that it likely means that your rent is too low. We have always kept our rent slightly below market. We both work full time jobs and this strategy seems to help retain long term tenants. We’ve been on autopilot a bit and we are now considering adding to our properties. WOW...we discovered we are more than just a little below market! We don’t typically raise rent on current tenants. We usually do increases during turnovers. I know we’ve left money on the table with this strategy, but at the time we were content with our little empire. Two thirds of our properties are paid off and the income more than pays for our personal mortgage, so no complaints at the time. Now that we are looking to expand we are starting to open our eyes. I still want to be slightly under market, but we discovered we are nearly $100 low on most units. The problem with that is you don’t get as many calls from good tenants because they perceive that you are cheap for a reason. Also, the obvious...we are leaving way too much money on the table every month. My advice is to analyze your market. You can go a little low, but don’t do what we’ve done. I’ve basically left a nice car payment on the table every month, lol!
- Parsippany, NJ · Member since 2016 · 64 posts · 49 votes8y@Adam Webb Coming from a 45 unit motel owner. 0% vacancy is beast. GOOD JOB! You can try to find a healthy balance of charging more and maximizing revenue. But in my eyes.. ill take a sure thing every day. Bird in hand is worth 2 in the bush. Especially in our business. When a room is empty for a night, its a total dead weight loss. Theres nothing i can do tomorrow to get that back. Charging double tomorrow doesnt bring back the loss from today. Cause i woulda got double tomorrow anyway. And still made zero today. I prioritize convenience and heads in beds.
- Provo, UT · Member since 2018 · 19 posts · 2 votes8y
super helpful. I was stressing about maximizing rent but from what everyone described as long as I’m in the range I’m good. And even if I’m charging slightly lower than I could, there are some actual benefits to that. Love the different opinions on this
- Griffin, GA · Member since 2017 · 63 posts · 82 votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @Mike S.:
Originally posted by @Jay Hinrichs:
don't look a gift horse in the mouth... bird in the hand etc etc. etc.. TURN OVER kills landlords
for me if I get a tenant who is good ( when I had tenants) I NEVER raised rents longevity and consistent payments over years of tenancy will beat turn over and raising the rent 20 bucks every time.. plus the simple hassle factor.. that's worth more to me than a few hundred bucks.
I raise rents every year on every property and average 3-5 years on my rentals(SFRs).
if everyone raised rents every year starting 50 years ago rents would be 20k a month.. not sure how viable rent raises every year are.
but to me personally I just like stability and no turn overs.. I had new construction homes and had tenants in there from the day they were built until I sold them 10 years later … but I am busy and rentals are far down my list of things to watch or worry about.
not too busy to post 22,000 times on bigger pockets.....
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Carl Pickens:
Originally posted by @Jay Hinrichs:
Originally posted by @Mike S.:
Originally posted by @Jay Hinrichs:
don't look a gift horse in the mouth... bird in the hand etc etc. etc.. TURN OVER kills landlords
for me if I get a tenant who is good ( when I had tenants) I NEVER raised rents longevity and consistent payments over years of tenancy will beat turn over and raising the rent 20 bucks every time.. plus the simple hassle factor.. that's worth more to me than a few hundred bucks.
I raise rents every year on every property and average 3-5 years on my rentals(SFRs).
if everyone raised rents every year starting 50 years ago rents would be 20k a month.. not sure how viable rent raises every year are.
but to me personally I just like stability and no turn overs.. I had new construction homes and had tenants in there from the day they were built until I sold them 10 years later … but I am busy and rentals are far down my list of things to watch or worry about.
not too busy to post 22,000 times on bigger pockets.....
YUP I like BP better than being a landlord that's for sure.. no tenants toilets and just a little bit of drama !!!
- Griffin, GA · Member since 2017 · 63 posts · 82 votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @Carl Pickens:
Originally posted by @Jay Hinrichs:
Originally posted by @Mike S.:
Originally posted by @Jay Hinrichs:
don't look a gift horse in the mouth... bird in the hand etc etc. etc.. TURN OVER kills landlords
for me if I get a tenant who is good ( when I had tenants) I NEVER raised rents longevity and consistent payments over years of tenancy will beat turn over and raising the rent 20 bucks every time.. plus the simple hassle factor.. that's worth more to me than a few hundred bucks.
I raise rents every year on every property and average 3-5 years on my rentals(SFRs).
if everyone raised rents every year starting 50 years ago rents would be 20k a month.. not sure how viable rent raises every year are.
but to me personally I just like stability and no turn overs.. I had new construction homes and had tenants in there from the day they were built until I sold them 10 years later … but I am busy and rentals are far down my list of things to watch or worry about.
not too busy to post 22,000 times on bigger pockets.....
YUP I like BP better than being a landlord that's for sure.. no tenants toilets and just a little bit of drama !!!
couldn't resist a jab, i always appreciate your input
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Carl Pickens:
Originally posted by @Jay Hinrichs:
Originally posted by @Carl Pickens:
Originally posted by @Jay Hinrichs:
Originally posted by @Mike S.:
Originally posted by @Jay Hinrichs:
don't look a gift horse in the mouth... bird in the hand etc etc. etc.. TURN OVER kills landlords
for me if I get a tenant who is good ( when I had tenants) I NEVER raised rents longevity and consistent payments over years of tenancy will beat turn over and raising the rent 20 bucks every time.. plus the simple hassle factor.. that's worth more to me than a few hundred bucks.
I raise rents every year on every property and average 3-5 years on my rentals(SFRs).
if everyone raised rents every year starting 50 years ago rents would be 20k a month.. not sure how viable rent raises every year are.
but to me personally I just like stability and no turn overs.. I had new construction homes and had tenants in there from the day they were built until I sold them 10 years later … but I am busy and rentals are far down my list of things to watch or worry about.
not too busy to post 22,000 times on bigger pockets.....
YUP I like BP better than being a landlord that's for sure.. no tenants toilets and just a little bit of drama !!!
couldn't resist a jab, i always appreciate your input
I hear ya been accused of worse..
- Investor · Newport Beach, CA · Member since 2010 · 86 posts · 24 votes8y
I'm not sure of your overall portfolio status, which is a big consideration, but on the commercial side typically our target is to have a 5% +/- vacancy rate (as long as we know our leasing team isn't slacking). When running the numbers, we found this ideal for pushing the market as hard as possible on pricing while still not letting vacancy run rampant.
Most of our tenants are office, retail, and specialized uses however. For a single tenant situation like an industrial concrete tilt up, or a SFH, we are MUCH more cautious and are much more willing to work it out with tenants to not have a 100% vacancy rate on a property. At certain times on critical projects, we're not above dropping the pen and just asking the tenant what they want.
- Specialist · Carrollton, TX · Member since 2016 · 145 posts · 100 votes8y
Interesting question, something on my mind as I have 0% vacancy most of this year on 75 units. I was overjoyed at first, not having to turn over properties, but I am now leaning towards increasing the rents and amenities to the point I will have some vacancies.
I used to be one of the people advocating slightly below market rent to keep tenants happy. But experience has taught me that tenants are happier with higher rents and better amenities. This also has the effect of slowly improving your tenant pool by adding people with more disposable income.
My short answer is: Yes, 0% is not the best vacancy number.
- New York, NY · Member since 2018 · 15 posts · 23 votes8y@Adam Webb I would say it’s only bad if you continue to renew the leases at below market rents to bad tenants. If you have solid tenants with no desire to leave then Zero vacancy is awesome.
- Real Estate Investor · Washington, DC · Member since 2014 · 236 posts · 328 votes8y
@Adam Webb if you think it's a little under market (say $100), why don't you run a craigslist ad for $300 more than you're asking now and see if you get any bites. Then do $200 and $100. Maybe it's not under market, maybe it's under by a little, but if it's only slightly under market and you have tenants that pay on time and don't hassle you for small things, it may be worth it to just sit pat and keep things where they are.
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