How long of vacancy until reducing rent?

20 Replies

New landlord here with first rental property. I have had the property on the market for 10 days with 3 showings with positive feedback however, all prospective customers have commented how the rent is slightly above average for the area, which is true. The rent is slightly higher due to the unit having its own personal, custom made pool. The unit also has a brand new AC, new pool pump, and a kitchen remodeled in 2017 with new appliances. Therefor, I am about $100 above comparables in the area. 

I am only cash flowing $200 at the current rent rate (not including vacancy, repairs, and capex) and so could drop the rent $50 and still be OK. 

So the question is: How long to wait with vacancy before going down on the rent? And is this a tough time of year for rentals due to the holidays?

Thanks!

Look at it from the tenant's perspective you can absolutely add value for a nice pool and remodeled kitchen, however it is very hard to justify increased rent because you put in a new AC or pool pump tenants expect something like that to just work (as they should) especially depending on the area.

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@Mike Abbate

This time of year is always tough to rent.  I understand why you choose the market rent you did.  $50 or $100 seems like a lot from your perspective.  An additional month of vacancy will cost you way more than the $50 or possibly the $100.  I try to stay within the market rent.  Go higher will limit your showings and possible tenants.

Good Luck.

If all prospective customers have commented how the rent is slightly above average for the area, then it is clear that they do not value the improvements nearly as much as you do. You need to lower the rent. A nicer unit at average rent will be a quick sell.

You talk like a proud father about his new baby, not like an investor.

  • Personal, custom made pool: Nope, it has a pool. Are pools standard in your area? If so, not added value. Also, custom designed doesn't add any value to a renter as the renter didn't design it.
  • Brand new AC: Renter only cares that it has a working AC.
  • New pool pump: In the history of the world, the words "I'd pay slightly above average rent for this place since it has a new pool pump" have never been spoken.
  • Kitchen remodeled with new appliances: This is the only thing that I can see allowing for higher rent, but it's going to depend on how nice of a remodel it is and what is expected in the area. Remodeled to standard rental unit kitchen with average appliances for the area or do you have quartz countertops and high end stainless appliances that are well above the competition?

@Mike Abbate This time of year is super hard to find tenants.  Noone wants to think about moving right before Christmas, too much money flowing out for holiday spending.  You also will get worse applicants this time of year.  I would plan on having it vacant for a bit of time (until early Jan.) until you do a price drop.

I also agree with others, that most of what you stated is does NOT add value to your renters.  In my market, only 3 showings in 10 days would be very low, but only you know your market.  Are you advertising the property in enough locations?  Do you have good or pro photos (I always get professional real estate photos of all units, so much better than phone photos)? 

Excellent feedback. 

The photos are high quality I believe, although taken from a cell phone, the lighting, angles, and clarity is good. The property is a townhouse and the only one with a pool in the neighborhood. I have it advertised on all main websites and am awaiting the arrival of FOR RENT yard signs.

My asking rent is $1700, its a 3/3. The closest comparables I can find are 3/2's that are in the $1500 range, with one 3/3 stand alone house going for $1800. Anything above $1500 rent is cash flow so obviously, anything below $1500 is breakeven or loss.

The market is red hot. Beachside property in Florida is (almost) always in high demand. I am prepared for a month or so of vacancy due to the time of year. Thanks to all for the input. 

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You could do a 6 month lease, then raise the rent after the lease is up. Your renter may just stay as it is easier to stay than move. I did this with some properties that were available in January (I had purchased in Nov and renovated them in Dec . That way I had no winter vacancy and didn't end up with a January vacancy again.

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I would lower rent to what is standard. Do a 6 month lease or just MTM.  Try to time vacancies (if possible) for spring summer or fall. 

Good luck :) 

@Mike Abbate If its priced correctly, you should have it rented by the 1st day of the month after you list it. It sounds like you have some positives (new kitchen, pool), some negatives (townhouse, possibly pool), and you may have spent money on things that add no rental value (A/C and pool pump, unless they didnt work). It sounds to me like you renovated as a flip, but are realizing that a flip and a rental are different animals. Price it at or slightly below market rent and get a qualified tenant ASAP. Dropping the rent $100/mo. will cost less than an extra mo th of vacancy. Remember, rent will generally always go up over time, so this year will be your worst year, financially, with this property, and it will get better every year going forward.
@Mike Abbate Agree with everyone that most of those things don’t add value for tenants. I hate to mention this, But I have to say, $200 cash flow before vacancies maintenance and capex means that property really is not going to produce positive cash flow. I hate to be negative, but I think most agree that you want to factor 5-7% for each of those. Let’s say 5% since your rents are over $1,000; that puts you at a loss of $55/ month. Is this an appreciation play? You did say it’s a townhouse; is it in an association you any chance? If so maybe most of the capex is covered in your HOAs; in which case you’d break even or have a flight profit. Based on the rents you described it doesn’t sound like you’re overpriced to me. If I were you I would find out which realtors manage a lot of similar and very near properties, then I’d call them all and ask them how much they’d rent my house for (might have to say you’re considering hiring a PM) so you can get more reliable feedback on your asking rent.
@Mike Abbate I’d also say it sounds like a great airbnb. I would STVR it through the holidays to produce some cash flow until you can get it rented.
Another reason why you should buy for cashflow . I would think If you are only getting 200 ( looks like even less soon) a month on a place like that then you did something wrong when you bought . All those fancy upgrades aren’t helping you . The bank still wants their money each month wether you added a pool or updated the kitchen . Usually Renters don’t think like investors ! They are monthly payment sensitive

@Greg Gaudet Im at $200 cash flow after capex, vacancies, repairs. Hiring a PM at this point would surely put me in the negative. 

@Dennis M. yeah, I did a few things wrong when I bought. A couple of newbie mistakes  1) slightly overpaid on the initial buy 2) Underestimated monthly expenses ( insurance, pool service) 3) slightly overestimated what I can command for rent

The positive is there is a 25% equity in the house in an area that seems to not be slowing down as far as real estate climate. I do believe a break even ( after vacancies, capex, reapirs, etc)  is still a win due to the tremendous learning experience this has been. 

Again, thanks everyone for the input.

@Mike Abbate I would lower rent $100/month and get someone in sooner than later. And hope you find someone for the long haul. Raise it $100/month next year when they renew.

@Mike Abbate First, CONGRATS on the new rental prop!!!!  All great points from folks on here... 

The last time I showed units for rent I had on average of 3 showings per day for 4-5 days per week (typically no showings on Sunday). I'm not a realtor, just a newbie landlord. With the holidays etc. yes it will be harder but not impossible to find renters.  People need to move for various reasons at all times of the year, you will need to stick to your screening process (background checks, application fees, landlord interviews, etc.) to improved the likelihood of long-term tenants who pay on time. 

I say lower the rent (to where it still makes sense) and increase your marketing efforts. Aim for at least 1 showing per day.... have at least 2 lined up since people will always cancel. Push through the holidays, someone is out there looking, but be prepared to have it vacant at least until after the holiday. If you have a good relationship with a local realtor, enlist their help. Whether listing it with them or getting their help to market etc. Finally, get the word out online, in person, FB, Insta, anywhere people are looking!

You will find a renter, it's really about when. GOOD LUCK!!!! 

@Mike Abbate . You said at the current rent you’re only cash flowing 200 not accounting for repairs and maintenance and vacancy. Therefore your long term cash flow will be negative. The right decision is to sell this rental.

@Caleb Heimsoth Im sorry, my verbiage was off. After I put money aside for capex, expenses, vacancy, and pool service, I am cash flowing $200 per month. Selling this property wouldnt make sense under the buy and hold plan I am operating under. I do believe the rents and market demand for property will increase and as others have said, my first year will be my worst. 

@Kerryanne Henry Thank you for the words of encouragement. I have learned so much in this process and realize the mistakes I have made and how to increase cash on cash ROI next time. Im setting a solid timeline for how I will lower the rent until I find a renter.

@Mike Abbate I used Avail.co and had no trouble because it listed the homes on Zillow, apartments.com, trulia etc! Well worth 9.99 a month, I can collect rent and do background,credit check and evictions etc. they collect the app fee and then it’s submitted to me! Let me know you can use my referral and it will give me a discount and then you can pass it along and get a discount!

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