Why You Should Prioritize Minimizing Vacancies Costs
Every minute an apartment sits vacant is a minute of missed revenue.
For this reason, successful real estate investors have instituted specific strategies to minimize vacancies, as well as shorten the amount of time it takes to make a unit ready to be occupied after a vacancy.
One unit out of a five-unit building can cost you 20 percent of your monthly revenue if it sits empty for 30 days. Depending upon the size of your portfolio and the number of simultaneous vacancies you experience, this could add up to many thousands of dollars in costs—a day.
There are a number of ongoing obligations to consider when a unit is waiting to be occupied. The monthly debt service is chief among these when the building has an outstanding mortgage. Utilities will also still be due. Granted, they’ll cost less, but since the expense is usually absorbed by rental income, it will come straight out of your potential profit. Your insurance costs remain constant as well. Reduced rental income also means a larger portion of your annual profit will go to property taxes at the end of the year.
The money to feed these expenses has to come from someplace. With vacancies, it’ll be straight out of your pocket. Fortunately, there are a number of strategies you can employ to reduce your vacancy costs.
To reduce turnaround times, many savvy property managers have established staggered move-outs. Rather than timing all leases to terminate at the end of the month, they vary them in order to avoid a glut of vacancies all at once.
Let’s say you have four tenants move out one month. If you let all of them go at the end of the month, your maintenance crew will have four refurbishments to begin dealing with all at once. Depending upon what’s required, it could be weeks before they can get to the work on the last one to get it back in shape.
With move-outs timed to occur throughout the month your units are rent ready again much more quickly. Similarly, if you schedule move outs to happen on Sunday rather than Friday, your crew can get to work on the unit the next day, as opposed to losing two days.
Preparing for the move out in advance can save you time and money as well. When a tenant gives notice, schedule a pre-vacate inspection right away. Look for wear and tear and damage to get an idea of what needs to be done to get the unit back in shape. By doing it as early as possible, you can give the tenant time to do everything they can to earn the refund of their security deposit. The more work they do, the less time it will take your crew to put the unit straight. This means it can be offered to the next tenant much more quickly.
Another key strategy for reducing turnaround times is staying on top of maintenance. This one could also keep a tenant from creating a vacancy in the first place. If you tend to be lax on maintenance while a unit is occupied, you’ll have to put more time into bringing it back to par for a new tenant. After all, the more you let go, the more you’ll have to fix all at once. The more that needs fixing, the longer the unit stays empty. The longer it stays empty, the more money you have to pay out of pocket for holding costs. Meanwhile, tenants who live in well-maintained apartments have a tendency to stay put in them longer.
Check their income to make sure they can afford the place. Ideally, they’ll make at least triple the rent amount each month. Once they’re in, do things to let them know you appreciate them. Send inexpensive gifts for the holidays and birthdays and offer incentives for referrals.
A well-rounded strategy for preventing and dealing with vacancies is key to maintaining the profitability of your investment property.