Crazed By Vacancies!

Rehabbing, Fix and Flip, Rental Properties
1

There is a landlord complaint that drives me nuts…VACANCY. This should not be a complaint. A vacancy should be the landlord’s marching orders, the work list, not something to whine about.

I have some relatives and friends who have a few rental properties. Sooner or later I will hear, “My house has been vacant for three months, the property management people don’t seem to be showing it.”

I think, “THREE MONTHS! ARE YOU NUTS? WHAT ARE YOU DOING ABOUT IT? AARGH!” But I just nod, “Unh-huh, too bad, hope it gets rented soon.”

Vacancy is just money going out the door! For God’s sake don’t let that happen to you.

I have a little ploy I use with my new foster kids. One of them will get up and dump an entire glass of orange juice down the drain, or throw their whole meal into the trash. Then I will get up, go over to the trash can and throw in a dollar bill. This ALWAYS gets their attention.

“WHOOA”, they say, “What are you doing? Throwing away money? Are you crazy? Why did you do that?”

“Well, you just did it, too,” I say, fishing the dollar bill out of the muck and wiping it off (I’m really NOT crazy). “You just dumped a whole dollar’s worth of orange juice right down the drain. So I can do it too, right?”

This leads into a nice little talk about how everything costs money and we gotta save, or we ARE just throwing dollar bills in the trash. This is often a new concept for kids who have lived in the moment always.

Back to the relatives…told me that they had PRAYED TO FILL THE VACANT HOUSE. Who have (this is true) DUG A STATUE OF ST. FRANCIS(?) INTO THE YARD to fill their vacant rental house.

Who have endured a YEAR of vacancy rather than lower the rent. The philosophy there was, “I’m not going to GIVE my house away!”

Do you all see why this could drive a person (me) f’ing crazy?!

Furnishedowner

2

You mean St. Joseph, the stepfather of Jesus. He was a carpenter so he became the Patron Saint of Real Estate. St. Francis was the Patron Saint of Animals. Roman Catholics love marrying some of the concepts of Pagan Rome with Christian Rome.

Anyway, there’s two strategies here. One is competing by lowering your price (which I wholeheartedly disagree with) and the other is cleaning up, updating and improving your rentals. If you have two very similar apartments charging market rents, I would opt for the strategy of offering a cleaner, updated apartment for market rent than lowering the price to have to deal with that kind of tenant.

Cheapskate renters are also chronic complainers and sh-t disturbers and most of my problems were from them. If it’s taking them a year to rent a unit at market rent, then they need to get a second opinion and have someone go through the unit and tell them what is wrong with it. Are there water stains, paint peeling, dated carpet, bad flooring, non-neutral unit colours being used? Or are they just terrible at sales and need to improve their sales skills. If they refuse to invest the money updating their unit, then they have to lower their price and deal with bipolar tenants.

There’s gotta be something turning potential renters off that they need to fix IMO that doesn’t require lowering their rent. If I saw the unit I’d immediately know what it is, and if they wouldn’t fix it, then that’s what would drive me crazy. I’m totally against lowering rents on updated units. If it’s just a bad neighbourhood, I would put the place up for sale as I don’t have the patience to deal with the kind of tenants that would live in those kinds of rentals anymore.

3

Dave,
It’s other people’s rentals that sit vacant. I have learned that I can’t fix their landlord problems so I don’t even give advice. When I have it has been ignored anyway. I just paddle my own canoe.

Here we operate at between 92-96% full all the time. These are fully-furnished rentals, so there is more turnover than with you landlords who do leases. We require a 30-day minimum stay only, and 2-weeks notice to vacate.

When we get a vacancy a giant red light with an alarm bell goes off here in the office. That’s just a mental alarm, but it is clanging nevertheless.

Immediately the unit goes on Craig’s List. The cleaning crew goes out. We go to the Wait List and start calling. We call or email existing tenants: “Do you have any co-workers who are in a hotel or looking for a house?”

If it is a weekend we get weekend cleaners. The handyman goes over and pitches in with cleaning, yardwork, repairs, anything at all to get the place showing-worthy. A vacancy is a Number 1 priority. We don’t dally, dawdle or delay. We rent the darn house. Otherwise we would just be throwing those dollars in the trash can.

Furnishedowner

4

Some landlords are just too stupid to be breathing.

The market is the market. If the unit won’t rent in a reasonable time, all marketing things being equal, the rent is too high for what is being offered.

Yes, we can improve a unit, and it may create a value-added element.

However, if we can’t get “more” rent without improvements, then our units weren’t worth what we were asking in the first place.

Otherwise, why not install granite, gold faucets, a pool, and what not. Those will attract better tenants. We won’t get more rent, or make our money back anytime soon, but the units will rent faster.

If low-end units are clean and functional, that’s their highest and best marketing potential …and will rent for what they will rent for.

Prospects won’t pay more just because the unit’s got ‘extras.’ Again, they’ll just rent faster. That’s all we can hope for.

And that may be worth it. After all, downtime, is lost money. I prefer clean and functional, not spending $1000 to get the unit rented in two days, rather than two weeks. But that’s just me.

Otherwise, we’re living in denial of reality.

Which brings me to something I was just talking about elsewhere here, and that is marketing to the C-grade prospects. These are ones that have a hard time getting someone to rent to them, and the same ones that will both appreciate and overcome the hurdles we ask them to jump.

Of course, the shelf life of “appreciation” lasts just about three hours after they move in, but I digress.

Except that…

  • We got $1200 ($100/mo) extra in extra rents the first year.
  • We got $600 in extra rents ($50/mo) we didn’t have to discount to attract AA tenants in the first place.
  • We didn’t have to spend $1000 in improvements to get the unit rented faster.
  • We saved $2000 in rents that would have been lost over 3 months waiting for ‘over-retail’ rents from a AA tenant.
  • As a result, we captured $1800 in extra rents; saved another $2000 in potentially lost rents; didn’t have to spend $1000 in upgrades; and captured a total savings and profit of $4800; just by marketing to a different niche of tenants.
5

Great point javipa. I try to make this point all the time. When people say they are going to put this or that into a house and they will get their money back or not get their money back they don’t understand the market. They will only get what the market value is for the house. A buyer will buy or tenant will rent your house or the one down the street. They will pay the same for each of them. A nicer house may go first but it won’t sell for more money than market price.

6

I agree with both of you. And you have both found your niches. The idea of C grade tenants is very interesting. But I think you have to be fishing in a pretty big pond to find those.

Here my tenants are traveling workers for the most part. Not vacationers, not locals, not long-term tenants with their own furniture. Although now we have several who have been with us for 2 to 3 years.

My point in all this is IF you are a landlord, get real about the inevitable vacancies. Don’t let an unoccupied house sit there without money coming in the door. !. Advertise, put a sign in the yard. 2. Clean and fix any small repairs right away. 3. Put up mini-blinds or curtains as blank windows appear scary and unfriendly. 4. Put info. flyers in a leaflet box in front. 5. Put it on Craig’s List and in the newspaper.

If you (or your agent) are not showing the house you are doing something wrong. Would YOU rent your own house?

I track occupancy by a simple count. Every Monday morning we ask, “How many units are not earning rent money today?” We write that number on the office calendar. At the end of the month, and year we average those numbers to determine vacancy rates.

A clean, well-priced, advertised unit should rent within days. Otherwise you are in a bad market or lazy or yes, maybe just stupid like javipa said. Maybe, like some of my friends and relatives, you just shouldn’t be a landlord.

Furnishedowner

7

Well, I don’t know about you, but c grade prospects in my area can’t pay anymore in rent and there’s always someone that will take them in somewhere else or they can also move into geared to income social housing. In fact, they are the ones that want to do a payment plan for last month’s rent. It’s the AA tenant that pays more and they pay last month’s rent without complaint. Why would you even do discounts with a AA tenant? If they like it, they’re going to take it. Price is irrelevant imo. You don’t need to discount anything.

Give you an example. I have an 18 unit apartment building on a block. Half a block away is a similar 18 unit building, similar age, and they charge $50 less than I do. I always get my units rented. Almost all my tenants in this building have credit scores in the 750-850 range. Can’t say the same for the one down the street. She always has a for rent sign in front. She takes in a lot of tenants with dogs. She lets anyone in. I heard she also often accepts payment plans for last month’s rent just to get it rented.

Why am I able to get $50 more a month in rent? One difference is I paint my apartments semi-glass white so it always looks fresh and clean. My countertops are not granite. I repaint them with white melamine. Everything white. I only buy white appliances. All toilets and bathroom sinks are white. I redo the hardwood floors and stay away from dated carpet in the hallways. I use only black carpet. Yet, the cheaper apartments down the street look dated.

Guess what. There’s an older building a block a way twice the size that also charges $50 less and they’ve got a for rent sign out front. I’ve been in there. Looks dated inside too and the colour scheme is wrong. I don’t mean classy, dated art deco style either. I mean 70s retro cheesy updated dated and they’re not using neutral colours like semi-gloss white.

Sorry, I disagree that lowering rents is the better strategy. Market efficiency is just one theory dealing with only one group of people when it comes to lifestyle choices. I’ve proven that with my properties that you don’t need to do that. I’ve had this building for 8 years. I once tried competing with rents with those other two and I got their “c-grade” prospects and it was nothing but complaints, headaches, and me running around all day dealing with their complaints. Instead I evicted them and started all over again with a different strategy. It would have been a race to bankruptcy and a mental institution if I kept following that strategy of competing with rents.

Someone tries to haggle with me with rent. Next. Find another building please.

My system works.

8

I know another landlord in town that has some nice properties that he built new back in the late 90’s and early 00’s. He has rented below market for years, and had basically no long vacancies as a result. Thing is, he dealt with subpar tenants and lots of turnovers. His places were dated and ugly, IMHO. The carpet he uses is a purple color with the pattern in it that that was popular in the 70’s. He says it lasts forever, but his last tenants got mad at him and cut squares out of the carpet in retaliation.

Was speaking to his son about a place he has for rent. He was having a hard time getting it filled quickly at 900/month. He decided to raise the rent and got it rented at $1150/month. The son was saying he had more interest at 1150 than at 900. The thing about maintaining subpar rents and properties is that you exclude certian classes of people all together. He wanted to be renting to the best tenants because it’s a pretty new house in a nice location, but he put up with crap for years as a result, and left a lot of money sitting on the table.

9

I never said ‘lower your rents.’ I said raise the rents, and market to people who ‘have to pay more’ because they have CC credit. I also didn’t say rent to dead-beats. Those would be D-grade tenants. I don’t rent to those folks. I rent to the ones who actually care about their credit, but have huge dents that scare off the competition.

I didn’t say we could/should rent dumps for over retail. I said, the units have to be clean and functional, and already priced for that market …and that they should rent within days, not months.

BTW, all white is a great marketing strategy on low-end products.

BUT, if we market to the people who have difficulty finding someone to rent to them, we can command higher rents, deposits, cosigners, and longer terms.

My last post was too long, to absorb the whole thing, evidently.

I first used this idea on two buildings (18 and 30 units) and a dozen single family houses in a slow market, where there weren’t enough AA tenants to pick from. The general vacancy rate in the area at the time was over 10%. So, what I’m mentioning works in any market, and is especially useful in an economically depressed area/market.

I also offer it as a way to overcome a weak market. There’s always C-grade prospects looking for a ‘break’ in weak markets. So, I give them those breaks ‘for a price.’

Also, what I said was that the AA tenants get the best bargains. They will not overpay. If you can get more from a AA tenant, that means you weren’t charging/asking enough in the first place.

You have to know your market. One way to guage it, is simply to raise the asking price until you notice fewer calls about the property.

I owned a rental in an area where the rents jumped 30% in 24 months. I had no idea I was giving away the rent, until my phone rang off the hook with prospects. I raised the asking price, and my phone died down, but I rented it.

FWIW

P.S. We only act on our beliefs. If we believe something won’t work, it won’t. I used to believe that renting to anyone with an eviction, or bad credit was a mistake. That was before I learned how to protect myself and turn lemons into lemonade.

10

Something else, I didn’t mention. I don’t market to bargain hunters.

So, the people that call on my ‘over retail’ ads are ready to pay me, for a reason. The reason(s) I like is that they’ve been rejected by the unsophisticated, if not ignorant, fearful and unimaginative landlords, that can’t think outside their little boxes. Yay, for ignorant landlords!

11

javipa said it all: YOU HAVE TO KNOW YOUR MARKET.

I probably shouldn’t be upset over those family/friend landlords who can’t/won’t/don’t wanna rent their units in a timely professional bird-dogging manner. Those landlords create the kinds of negative cash flows that the rest of us like to buy.

It’s just that when I KNOW those landlords, and their units are empty, I get the feeling that they want some of our pixie dust to rub off on them. But it ain’t pixie dust! It’s that red, clanging bell in the office that screams “GET IT RENTED!” It’s us working in the evening and Saturday and Sunday if necessary until rent walks in the door.

Very interesting to hear from you other landlords and how you deal with your markets. And I bet that you don’t have months and months of vacancy either. You are either firing your property managers or doing it yourselves, but it is getting done. Or you are out of business.

Furnishedowner

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Managers here are lazy. I do it myself.

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X2

Haha. Managers are useless when it comes to finding decent tenants willing to pay what I ask.

14

I took AA to mean quality of tenant not African American. If you mean African American then I don’t recommend anybody following that advice. You need to set rents based on the market of that area. If you get one price for the property for white and another for African American you are violating the law and I DO NOT recommend anybody following that advice. Discrimination is what we do or else we would rent to the first person that shows up, but ILLEGAL discrimination is something we should never do. We need to be able to show that anybody that showed up that meets the requirements gets the place for the same price. You should be able to show that white applicants got the same deals that the African American applicants did.

15

He talks about C and D grade applicants too. I’m pretty sure he didn’t mean what you think.

16

WHAT!!!???

AA credit would not mean “African American.” If you thought ‘that’, what did you think “CC” credit meant? “Cau-Casian?” Come on, really, you would confuse this?

17

This is me laughing inappropriately at work… :biggrin

18

Thanks, I always valued your advice and it concerned me if that was true. My main mentor ran into this when he used to use colors to rate applicants. He used to say an applicant was either white, grey or black. He then realized it was confusing and started calling them perfect people, pink people, and purple Martians because these guys could not be real people. Now that Black people are now called African Americans (no matter if they are Americans or not but I digress) I guess we need to think about that.

19

You must be in a crazy racist area. That never occurred to me.

BTW, I never use hyphenated terms to describe people.

This became extremely important after I had a black tenant attempt to extort money out of me, by claiming I was discriminating against “African Americans.” Never mind I had many black tenants, who never seemed to have a problem with me.

Never mind this woman would walk past me, and invariably call me a “fat, white f*cker.” And I don’t mean Focker.

Of course I quoted her, word for word, in court during the eviction proceeding. That ‘was’ delicious. And I won.

Of course, I wasn’t discriminating, and after nine months of enduring undercover applicants, including a 30-something, white guy, wearing Birkenstocks, wire rim glasses, and a ponytail (toting his 7-year old son), whom was asking all sorts of strange questions that ‘normal’ applicants don’t ask; completing several inches of investigatory paperwork; the federal government finally gave up on the chase.

I got this very short certified letter explaining that they were dropping the investigation for lack of evidence.

So, I’m keenly aware and quite careful now when dealing with, and referring to black people, as a result. They have a LOT of sympathy within the federal government.

That’s another reason why I don’t ever turn anyone down. I just look at their credit, and history, and have a well-defined set of hurdles to overcome, if the applicant wants to rent from me.

Otherwise, if their money is green, they qualify.

As a result, too, the applicants turn me down, I don’t turn them down.

The interesting thing is that the “DD” credit applicants, and I don’t mean “Danish Americans” never cough up the co-signers I ask for.

As long as everyone is qualified the same way, there’s no problems.

As an aside, what I see other landlords do, is make up their minds about a tenant with the most subjective methods possible, based on the car they drive, whether or not they’re wearing a Burka; and goofy crap like driving by the applicant’s current address to see how well they take care of the lawn (really), and unreliable non-sense like calling the current landlord.

What landlord never fudges about the tenant they are happy to get rid of?

Anyway, those Danish Americans are the worst.

20

Houston Texas…the middle of the Bible belt. But you know racism is not Black and white (excuse the pun) it is a continuum. Everybody is somewhere on that continuum. I was reminded of that because I was on jury duty yesterday. I had to actively think about my prejudices and what effect they may or not have been playing on my thoughts about these people and their situations. Since it is hard to know how far left or right you can be on that scale and still be acceptable to the authorities it is best to use a system like yours. That way you don’t have to love the tenant just rent to them.