Vacancy ‒ it can be a powerful friend in your real estate income portfolio… or it can be profit-sucking enemy to your success and well-being.
Calculate a realistic vacancy rate int
o your property’s assessment from the beginning (after all, you can’t guarantee you’ll always have tenants in place…), and approach tenant retention the right way ‒ and vacancy will not be a problem for you.
On the other hand, if your cash flow calculations aren’t reality-based to begin with, and if you don’t follow best practices to keep high-quality tenants in place ‒ you’ll probably feel your heart rate jump every time you so much as hear the word “vacancy.”
The good news is ‒ it’s pretty much up to you whether vacancy is your friend or foe. And it begins before you ever purchase a rental property.
In fact, it begins not so much with thinking about vacancy, exactly, as with thinking about your tenants.
After all, what’s a vacancy problem? It’s really a tenant problem. You can’t keep tenants in your property because:
They don’t pay on time and you have to evict them;They’re flaky and seem intent on more or less destroying your property;They’re always moving away to find a better neighborhood;They’re unhappy with the property once they move in because of ongoing maintenance issues or problems with neighbors, etc.;They’re always moving from one job to the next, which leads to the first problem above…
And so on. In other words, you have a vacancy problem in large part because you’re attracting the wrong kinds of tenants to begin with.
So how do you attract the kinds of tenants who will be happy to live in your property, take care of it, and pay you on time?
Identify Your Ideal Tenant
If your doing things the RP Capital way, you’re working with single family residences (SFRs). So you want to target families. It’s the same if you’ve also got some 4-plexes in your portfolio.
But there’s more. Since we want the kind of folks who pay the rent on time, take care of your property, and are basically decent, law-abiding folks…
We’re targeting professionals. White-collar or high-paying blue-collar folks who know how to hold down a job and keep themselves afloat financially. Who understand about paying their bills and following through on their commitments (because they have the discipline, habits, and proven track record of doing so).
We don’t want a bunch of college kids, for example. Not only are they going to be short on cash (as a rule), but they’re likely to damage your property, to say the least. There are exceptions, sure. But we don’t want to go hunting for the exceptions to the rule ‒ we just want to focus on the most dependable kind of tenants.
We don’t want people who drift from job to job, and crisis to crisis. They need some form of charity, not your house. And we’re not running a charity here ‒ we’re offering higher-quality houses for rent as an investment strategy. Helping folks going through hard times with their housing is a fine thing to do, just not with your investment properties. (Of course, you could dramatically increase your net worth via these properties… and then use your capital to find ways to help these other types of tenants. That would be the RP Capital way!)
This all may seem kind of obvious, but it’s a foundational marketing strategy: you always begin with your market’s needs, desires, and wants. And that means you need to decide who your market is. Because, in the end, you are serving a particular market with your rental properties, and you (or your property management company) are going to market to them somehow. So it’s a key step to get very clear in your mind exactly who it is that’s going to be living in your properties.
Get clear on your ideal future tenants’ income level, education level, spending habits, schooling mindset, and so on.
Choose the Best Neighborhoods for Those Tenants
Things quickly get easy from here on. Once you’ve identified your ideal tenants, ask yourself, “What kind of neighborhood would they want to live in?” Simple.
Think about what they’re looking for in terms of:
Job growth and potential ‒ This includes multiple industries and types of employment. If the whole economy depends on one factory, don’t invest there ‒ too much is riding on that one business.Commercial development ‒ It’s a good sign when restaurants, shopping centers, and business parks, etc., are going up. And they need to be the right kind of restaurants and shopping centers…Population trends ‒ Bottom line: you want an area where people have already begun relocating to, where the population has already begun to rise. If the exodus has begun, your ideal tenants are not going to be interested in settling down there.
And don’t forget things like… overall affordability, access to good schools and universities, a low crime rate, and access to health care. Again, you’re basically just putting yourself in your tenants’ shoes and asking, “Is this a neighborhood, is this a region, where they would want to live?”
A wonderful house… in a cruddy neighborhood in an economically stagnant region or state… won’t do your tenants any good. Or you. You have to look at houses in their overall geographic and economic context. Just like your tenants will.
Put Them in a House That Works for Them
I’ve covered this in another post, so I’ll just re-cap it here. What your tenants are looking for is something like this…
New construction ‒ Maximum of 10 years old (possibly a bit older in some markets). This attracts the renters you want… and also cuts down on maintenance costs for you!
Minimum 3 bedroom/2 bath with attached garage
1,200 Sq ft. minimum
Ready to rent ‒ Properties should already feature landscaping, appliances, blinds, garage door openers. You want to make it super easy for tenants to say Yes…
That last sentence sums it up: make your property a no-brainer for them ‒ don’t give them any reason to walk away.
You Win Before You Sign Your First Lease
And that’s it! I’m not saying that aren’t details we could address here or there. But the truth is, most investors run into vacancy problems because they’ve neglected one of the three fundamentals above. When you do that, you attract the wrong kind of tenant. And the wrong kind of tenant ends up leading to vacancy issues.
You can avoid all of that. Find out where the kind of tenants you’re after like to live ‒ buy the right kind of house in those areas… and they’ll beat down your door to rent from you.
Give us a call at (801) 990-5109 or schedule your free appointment here to build a personalized Wealth Plan. We’ll help you invest in real estate the right way ‒ including
learning the best markets to find your ideal tenants in.
