Each landlord we work with has a unique problem—filling their rental vacancy.
On the surface, It may seem like a unique problem to only this industry. But when you apply business topology, the problem becomes quite common. In fact, there are at least 3 other industries who have almost the exact same problem.
Billboards, hotels, and airlines all HATE unsold inventory because the moment when time passes, it is utterly worthless. As soon as the date changes on a hotel room with vacancies, that hotel cannot make up the lost profit. Same with the radio station with unsold advertising slots for radio commercials. Same for airliners that taxi and take off with seats missing rear ends sitting in them.
Same for landlords.
Which is why we are a strong proponent of aggressive and early marketing of properties with vacancies coming up soon. Think about the math here….
If you rent a property for $1000 a month, then on an annual basis your maximum rent revenue possible is $12,000, right? That’s the best the property will perform for you in terms of rental revenue. Continuing on this logic, if the average single family home rents for $1000 a month, then every single day it sits vacant is $33.33, using a 30 day calendar. So if it sits vacant for a week, the landlord has a vacancy cost of $233.33. But actually it is much more expensive than just the $233.33 when you also itemize the per day holding costs of insurance, taxes, and base line utilities….so let’s plug in a monthly cost of $200 here for those items. Now, the daily vacancy cost is $40/day, and $280/week.
The question morphs into not just how can I minimize my vacancy periods, but instead morphs into how can I Maximize my cash flow each month and year.
The answer is quite elementary in nature but difficult to execute consistently in everyday practice.
First, your lease agreement with the tenants must contain the proper language which allows you to show the property to potential renters, buyers, inspectors, whoever with reasonable advance notice. This way, you can begin to market the property when needed BEFORE it becomes vacant.
Second, your lease agreement with the tenants must also contain the proper “carrot and stick” if they deny your right to show the property–in other words, it has to be a legal matter and financial matter if they decline showing opportunities.
Third, you should prepare your tenants early and often during their lease term that you’ll want a confirmation about 90 days before the end of their lease if they plan on staying or leaving. This gives you almost 3 months to market and find your next tenant.
With these 3 simple changes to your process, you can narrow that vacancy period to only a few days in between tenants to allow for Make Ready efforts and the like.
And that’s how you maximize cash flow from rent revenue.
Dan Baldini is the Founder of Polaris Real Estate & Polaris Property Management, LLC and is also an Adjunct Professor in the College of Business Finance Department at Butler University in Indianapolis where he teaches Real Estate Investing.
Dan focuses his practice on the residential real estate markets including Indianapolis, Carmel, Zionsville, Fishers and other surrounding areas. Dan continually seeks out new resources for Team training and education in order to keep all the Team members skills on the leading edge of real estate best practices. He is an active real estate investor himself, owning and managing a portfolio of investment properties in the Indianapolis markets.
A resident of the Northside area since 1979, Dan has extensive intimate knowledge and experience of the market forces that dominate the Zionsville, Carmel, Fishers, and Indianapolis real estate markets. He has been active in real estate since 1996 with a specific focus on North side properties. Dan is an active networker in his local communities as well as with top agents nationwide.