I am amazed at how many real estate investors don’t do the simple math to determine if spending money to fill a vacancy is better than having a house sit vacant. You may be in a city that is experiencing a strong rental market or you may be in a city that is seeing high vacancy rates for rental properties. Either way, if you sit down and do the math, it definitely pays to spend some money to get your houses filled, and filled quickly.
There are two ways to spend money to get your vacant houses occupied quickly: improve the condition of the property to make it more attractive to potential tenants and increase your marketing to get more people to see the property.
I recommend you spend money on both.
Take some time to figure out what ALL your expenses are when you have a vacant property. Of course, you will include your mortgage payment, taxes and insurance, but many investors overlook expenses like utilities and maintenance – such as snow removal or lawn care. I think you will realize that once you know what your expenses are you can easily justify spending some money to fill your vacancy. It is really a matter of spending it now to get it occupied or spending it later to pay more “holding costs” of having a property vacant.
Now, I don’t recommend you indiscriminately spend money on fixing up and marketing your property. I do recommend you spend money in the areas that will get you the highest return for your money. Here are some common sense areas to spend money.
Clean houses are rented far more quickly than dirty houses. Yard signs are cheap and effective ways to generate calls about rental properties. Free classified websites only cost you some time. The curb appeal that attracts potential tenants driving by can mean the difference between a call and no call, so make sure the house looks good from the outside. The general rule for carpet in a rental property is, “would I let my young children roll around on this carpet?” If the answer is no, you need to either clean or replace them -whichever gets you a yes answer to that question.
In general, it is far better to overspend a little on getting a house ready and marketed so that you can select the BEST tenant and not just the first tenant that comes along.
Until my next post,
James
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Have you ever wondered why some real estate investors can command top dollar for their rental units, while others have trouble just keeping their houses occupied even at discounted rents?
Vacancy rates are affected, to a very large degree, by the condition you keep your property in, both while occupied by a tenant and while seeking a new tenant.
If you keep your property in great condition, you can get your houses occupied quickly, for the highest rental prices and with the best tenants because you will have multiple applicants.
If you keep your property in horrible condition, you can expect the house to sit vacant, and to get low rental rates. You will be forced to accept the worst of the worst tenants… those whom no other landlord will rent to.
When you consider the costs of a month or two of vacancy while finding a tenant, the reduced income from getting lower rental rates and dealing with slow or non-paying tenants, you can see why completing the proper maintenance on your properties is actually a profitable decision and not nearly as expensive as it may, at first, appear.
If you ever wondered whether the low or no maintenance strategy really works over a long period of time, I encourage you to try playing two different games on the Learn To Be Rich investment simulator. In one game, keep your houses well maintained. In the other, defer maintenance as long as possible.
I think you will find the results very interesting both in the game and in real world investing.
Until my next post,
James
P.S. Sign up today for our real estate investor consulting and mentoring program Bronze Membership.
