A vacant investment property is a landlord’s worst nightmare. No tenant means no rent, and no rent means huge loss of income. But fortunately, there are strategies to reduce your rental vacancy rate, and it all comes down to the three P’s. Price. Presentation. Property Manager. If you’re currently struggling to fill your rental vacancy, there’s a good chance one of the following applies to you:
More often than not, the biggest reason for a vacant investment property is a problem with the price. For this reason, market research is crucial for finding out what tenants are paying for comparable rentals in your area. A too-high listing price will drive potential tenants away, but if the market is in a slump you risk becoming desperate and listing the price too low. But you can offset a price reduction by offering a shorter lease period so the agreement ends during busier months. You can then review the rent price at the end of the fixed-term. Consider the following scenarios:
It’s August; a typically slow time for the rental market. The Smith’s property has been vacant for four weeks and their property manager has advised a price drop. It’s currently advertised at $450 per week, but the agent recommends reducing it to $430 to be more competitive. The Smith’s decline and the property remains vacant for an additional two weeks. Finally, the Smith’s agree to $430 and the following week they agree to a six-month lease ending in February, bringing the total vacancy to seven weeks. Had the Smith’s agreed to $430 per week from the start, they would’ve been $3010 better off. Even if they’d achieved their initial price of $450, after being vacant for seven weeks, it would’ve taken more than 150 weeks to recover their losses.
At the same time, the Morgan’s have a comparable investment property due to become vacant next week. Their property manager suggests a price drop to $430 per week and also recommends a six-month lease period to review again in February when the market picks up. The Morgan’s agree to list the property at $430 a week, and they find a new tenant the following week before the property becomes vacant. Because the property is never vacant, they don’t lose any rental income at all.
Listing a property slightly below market value is a smarter alternative to having a vacant money pit. You can always offer a shorter lease period and raise the rent price again when market conditions are in your favour.
If you have plenty of enquiries but no applications or second inspections, chances are your property presentation is underwhelming. It’s important to maintain the appearance of the property and carry out repairs when necessary. Being lazy reduces the quality of your investment, and generally the quality of your tenants will follow suit. Make sure your tenant, if you have one, is doing their share of the upkeep, and don’t slack off on yours. Also check that your advertisement isn’t misleading, causing potential tenants to leave the inspection disappointed.
Sadly, there are occasions when you’ve done everything right and your property looks great, but your agent is letting you down. It could be that they’re too slow responding to enquiries, or not following up on leads. Whatever the issue, sometimes it’s perfectly okay to break up with your agent and start seeing other people. It’s your property manager’s job to promote your property and find tenants, so make sure they’ve used high-quality photos and written a well-thought, detailed advertisement that’s listed on high-traffic real estate websites. Your agent should communicate with you regularly and keep you informed on what’s happening so you can both make decisions together.
The best way to handle – or even avoid – a vacant property is to be proactive. The three P’s – price, presentation, and property manager, are key to side-stepping the vacancy pothole that so many property investors fall into.