6 REASONS OVER-EAGERNESS TO FILL VACANCIES QUICKLY CAN AND WILL BACKFIRE
From time to time we at Nexus Property Management® have conversations with owners with upcoming vacancies regarding when to start advertising the unit. Intuitively, owners want to get a new paying tenant in as soon as they can, to minimize lost rent, and in doing so they elect to advertise occupied apartments. Does this save time? Yes. But is it best practice? As an investor, your decision making should always hinge on long term results. Advertising occupied units may put more money in your pocket in the “here and now”, but inevitably you’re leaving gains on the table, or putting yourself at risk of significant losses by losing sight of the long game.
Nexus has managed thousands of units since our inception in 2012 in six different franchise territories across the country. Based on that experience, here are the six top reasons why you should resist the urge to advertise occupied units and instead build an efficient system to ensure you’re minimizing risks and maximizing long term rewards.
1. YOU CAN’T GUARANTEE THE OUTGOING TENANT’S TIMELINE
More often than not, tenants leave when they say they’re going to leave. However, if I’m moving into a new home, the apartment you showed me, I’m not satisfied with it being ready for me on my move in day “more often than not”. There are many reasons tenants might overstay their lease or the time they told you they’ be out and here are the three most common:
- The availability of the apartment they’re moving into next was delayed for some reason
- Things fell through with the moving company or friends who were supposed to help and they need to reschedule
- Their next lease doesn’t start yet and they know the legal system well enough to know that you can’t evict them in that time so they’re going to take advantage of the loophole
Regardless of the reason, there’s no guarantee that your tenants will be out when you want them to leave. That means every next step in the process is delayed and if you’re eager to get your next tenant in ASAP (we’ve seen plenty of owners trying to get someone in the very next day), it’s unlikely you left yourself a much needed window. If your new tenants signed a lease saying they’d gain possession of the unit September 1 but it’s still occupied by someone else or isn’t ready until September 5, what do you do? Negotiate? Put them up in a hotel? Whatever the answer is, it costs you money (and credibility).
2. SCHEDULING SHOWINGS CAN BE A NIGHTMARE
If you’re showing an occupied unit to a prospective renter you’ll need to coordinate between three separate parties. The current occupants will want to be there to ensure their belongings are not interfered with (see below) and laws vary by state, but typically you need to give them 48 hours notice before entering the premises. You then need to balance their availability (which they have no obligation to make flexible) with your own and that of ALL prospective tenants as it is likely you’ll have multiple showings. Could luck be on your side and maybe everyone is happy to meet on a Sunday afternoon while the game is on, maybe? But, typically coordinating showings between three parties is a major headache.
Bringing strangers in and parading them through someone else’s living space and possessions can be at the least uncomfortable and at the most, unsafe. If a prospective tenant wants to see how much closet space there is, would you be comfortable with them looking through your clothes? Do you want someone in your bathroom or looking around your child’s bedroom? Or seeing where your electronics and jewelry might be located after learning of times during the day that you’re not home from the difficulty it took to schedule the showing in the first place (see above)? Post-Covid, Americans are still at home more than ever and the already uncomfortable thought of having strangers where you live, and possibly work, with full view of your personal belongings and lifestyle, has never been more distasteful or unsafe.
4. SECURITY DEPOSITS
When a tenant moves out, it is the landlord’s responsibility to assess any damages beyond normal wear and tear and decide how much of the security deposit will be withheld to address those maintenance needs. Remember, the security deposit is the tenant’s money, not the landlords, and any deductions the property owner makes need to be justified. In fact, tenants can sue for twice the amount of the security deposit in many states (including Connecticut and Arizona) and as much as three times the security deposit in others (such as Rhode Island and Massachusetts). What’s all this mean? You need to take the time to fully analyze these damages and make sure you’ve recorded and can defend any monies you withhold should you be brought to court. If you fail to do this in your haste, or do not record in a way that can prove the new tenants aren’t responsible for the damage (since they were placed so quickly), you could easily cost yourself several thousand dollars.
5. YOU NEED TIME TO ADDRESS MAINTENANCE NEEDS
If your outgoing tenants left the place in a condition where it can be rented to someone new right away...you shouldn’t let them leave!!! The reality is that you’re going to have things that need to be addressed and you need time to take care of those things properly. Carpet cleaning is almost always needed, especially if there were children or pets. You’ll need to decide whether you want to just do touch up paint or paint entire walls, entire rooms, or the entire unit? Bathrooms and kitchens need a deep cleaning and any and all debris needs to be removed. If you’re a prospective tenant and a landlord is showing you an occupied unit, realize that their main objective is a speedy turnover and there’s a good chance these things will be overlooked and neglected. And to return to the idea of safety; if they’re in such a hurry, do you think they’re taking the time to change the locks from the previous tenancy?
6. YOU NEED TIME TO MAKE UPGRADES
The key to successful real estate investment is adding value to your property so you can bring in top dollar for your units. If you’re skipping this step in exchange for getting a tenant in quickly, you’re shooting your future self in the foot. Above, the question about how extensive the painting needs might be was raised. If a landlord just touches up on nicks and blemishes, they’re not adding value and they’re costing themselves higher potential rent prices. Instead, you’re doing showings of occupied units, that are dirty and used and you’re going to attract tenants at that level. Is it expensive to add new cabinets or new countertops or new stainless steel appliances, sure…but that’s why it’s called an investment property.
CONCLUSIONS AND NEXT STEPS
If a vacant unit is unfilled for a month owners make no money, so naturally they want to get it filled quickly. But being blinded by this loss aversion will hurt your investment and cost you more in the long run. When it comes to rentals, you’re competing with every other rental in the area and you need something to help create a competitive advantage. Otherwise, you’re going to attract the same tenants over and over and you won’t be able to keep up with and take advantage of increasing rental markets. You’re also less likely to have long term tenancy because you were unable to attract high quality tenants, so it’s much more likely you’ll be in this position again soon. When it comes to vacancies and rental unit turnover, take your time to do it right. The goal isn’t speed, the goal is efficiency, which you can establish systems for yourself, or hire a professional to make life and investing that much easier.
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Mick Lefort is the General Manager of Nexus' New Haven County Franchise Office and the Vice President of Operations for Nexus Property Management®, a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.
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