REAL TALK RENTALS

How to Avoid Vacancies

Ben Bailey: Coming up on today's episode of Real Talk Rentals, we're going to talk about the number one enemy of rental properties vacancy. Welcome back to Real Talk Rentals, a podcast brought to you by On Q Property Management. We're here to tell you all the tips and tricks that go into owning a rental property, all the behind the scenes secrets and everything in between. I'm Ben. I'm your host. With me, as always, my co-host, Mr. Eric Dixon, the go to expert on all things rental property and real estate. And for this episode, we're going to dive into something that we've probably mentioned every single other episode, and we figured now's the time to do a deep dive into it. And that is the number one enemy of rental properties Vacancy, vacancy.

Eric Dixon: Highest expense.

Ben Bailey: Highest expense. So Eric, let's start super broad and discuss what leads to a property being vacant. It may seem obvious, but there's a lot of things that can go into a property sitting empty.

Eric Dixon: Yeah. So we'll start out, I think we were thinking about this yesterday and there's kind of like two standard ways that a property becomes vacant and one is a tenant initiated notice or a landlord initiated notice. So, you know, if the landlord wants you to move, maybe they want to sell, maybe they want to move back in. Or if a tenant puts one in because they want to move or they want to upgrade or maybe they bought a house or whatever. So those are those are like following the lease. Here's a written 30 day notice and it's kind of a standard vacancy. You know what's happening, you know what's coming up. You have at least a 30 day heads up and you can plan for it, you know, So I consider that's kind of a standard vacancy. Um, I guess the other standard one that is longer than normal typically is if it's my first time renting it.

Ben Bailey: Because you've been living in the property for 20 years and now you're like, I'm moving out of here, but I'm going to keep this house. Yeah, it could.

Eric Dixon: Be, Yeah. You're turning into your primary residence into a rental or I just bought a rental and today I closed. I paid the money, I signed the docs. I own it today. Right. And now I got to jump in there and get it ready. And so that's usually kind of your longer of the vacancies is your first time because you're getting it ready, you're getting to know the property. It's the classic like the example you just said where it's your house for many years and then you turn it into a rental. Yeah. And you go through your wife's checklist of all the things she's wanted done for the last ten years. You finally do for the tenant? Yeah.

Ben Bailey: Not for your.

Eric Dixon: Wife. Not. Not all those. All those holes in the walls, all those squeaky hinges. You're like, oh, we got to fix all that stuff for the tenant. Yeah, like, dude, that's been on the honey do list for, for years. So those are the kind of standard ones, I would say the unique ones and they're not always fun are things like an eviction. So non-payment of rent or there was, you know, some reason you had to evict the tenant. There's an abandonment. So they just skip right? And you have no idea. And then you show up and you have to post an abandonment. Notice another one that we see, not a ton in Arizona. It's not we're not a military area here, but military orders like people get ordered out. Yeah, they.

Ben Bailey: Don't have a choice. They just have to go.

Eric Dixon: Yep. And I've got you know, we have colleagues that manage properties in like Colorado Springs, Colorado, and there's an Air Force base there, I think, and they're like, Oh, military orders is a big thing. Like that's a huge like, Hey, I got my orders, you know, just another day of the week. Yeah. Type thing. And it's like they have to deal with that. Um, another unique vacancy would be apparel of some sort. So a flood or a fire.

Ben Bailey: Right. Where they can't live there anymore.

Eric Dixon: Yeah. So the tenant is forced to move. No one wanted them to move. The owner certainly didn't. The tenants don't want to. Right. And then similar to the eviction, I guess there's the another not fun one would be criminal charges of the tenant. So whether it's domestic violence a break in there's and it makes it uninhabitable or there's, you know, a meth lab in the house or something like that. We got a.

Ben Bailey: Situation. I don't think this is very common either. Where last year. Someone. The actual tenant had to move because of domestic violence. She was getting away from it. She wasn't the one committing the crime. It was. He knows. Where am I can't stay here. And we had to let him out of the lease. Oh, absolutely.

Eric Dixon: No. And. And you say, Yeah, we had to let him out. We work with those victims as much as you know. Hey, give me the police report and I can show it to the owner. And sometimes the owner is like, What are you talking about? They can't just leave. And we're like, Hey, look, got the police report. It's not a safe area. It's not a safe spot for them. And we, you know, move on and help them out. So I would say those are kind of your unique ones, and it's unique in the event that they come without warning. It's like, no, we got a phone call this morning. It's a Tuesday. And it's like, hey, your house is on fire. The tenants can't live there. And you're like, Oh man, I was not planning on that. My mortgage is doing a couple of days. You have to give their rent back. You got to do this, you know, and it hopefully.

Ben Bailey: You listen to our insurance episode. Yes.

Eric Dixon: And you got your loss of rent.

Ben Bailey: Hey covered.

Eric Dixon: Exactly. So, um, I would say those are kind of the ones just to think about. I mean, if you're a landlord or a potential landlord, you can always plan for those, hey, when the tenant moves out or when I want to move back in or whatever. But you can never plan for that other list. You know, the evictions, the criminal charges, military orders, domestic violence. It could be that the family and they can't necessarily just skip out, but there could be a divorce or they could be a marriage or there could be a, you know, a breakup. And it's like it affects the landlord, too. Yeah, in some ways. So.

Ben Bailey: All right. So that's what can lead to a vacancy. And we say this all the time, like I said, that avoid vacancies at all costs. So. When things like this happened and you're trying to minimize that vacancy. Why? What is the downfall of having a vacancy, especially one, you know, we could cover short and then longer term. What's the damage?

Eric Dixon: Yeah, So it's kind of again, I always separate it into like two groups. But the one group is the hard costs, right? So those are the actual you're writing a check for the costs, right? So maybe you have a mortgage on the property, so you've got a mortgage cost and that includes your insurance and your property taxes and the interest and the the principal on your loan. And then you've got utilities while it's vacant here in Arizona. It can be a big deal in the summer if.

Ben Bailey: Even that.

Eric Dixon: You got to run the AC at least 85 at the highest. You know.

Ben Bailey: It sounds probably so hot to everyone else. It's like that's like at times 40 degrees cooler than it is. Yeah.

Eric Dixon: Like if you're looking at houses in July and it's a vacant house and it's 115in your car and outside and you walk into a refreshing 85. Yeah. You know, so but utility costs so that's if you have grass, it's like you got to water in the summer heavy. So utilities are not cheap. You know here here in Arizona, um, there's landscape, you know, while it's vacant, there's landscape keep up. So landscaping and weeds keep growing regardless of if there's a tenant or not. So those are the hard costs, right? You're paying your landscape, you're paying your pest control guy, you're paying your pool service, you're paying your mortgage.

Ben Bailey: Your costs that would normally go to the tenant, go person living there would.

Eric Dixon: Be or the or the rent would help cover. Right. And so and then mortgage and then the other the other cost is the opportunity cost the loss of opportunity cost which is the, the rent coming in. So every single day that goes by, you're losing on that potential income. So let's just say to make numbers easy rents three grand, divide that by 30 days every day that that sits vacant, that's $100 that you didn't have to write a check for it, but you didn't get a check for it either. Right. You know, and so every day that goes by and we have this conversation with some landlords are just so stubborn and it's like, Hey, dude, if you would just lower the rent to 100 bucks and get this rented today, you will lose less annually. Yeah. Than you would have just sitting on it for a month or two or 3 or 4, you know, just because you want that, that high rent. So, um, you know, when it gets rented, like you said, the tenant takes over things like utilities and landscaping and pest control and those, those costs, and then that rental income helps offset your costs. So vacancy is like a double whammy, man. It's like it's not just loss of rent, it's loss of rent plus all these hard costs that that the tenant usually covers.

Ben Bailey: And there's things. That can happen to an empty house, right? A home is sitting empty in the neighborhood. Oh, there's the nicest neighborhood. There's a risk.

Eric Dixon: Yeah, there's a financial risk, which I talked about. But you're talking about, like, the physical risk of, like, a vacant house is like a sitting duck. Yeah. It's like, break into me, break into me, break my window, steal my appliances, you know, that sort of thing. It's like if you minimize that 30 day vacancy to 15, you just it's a 50% less chance there's going to be vandalism or a break in or a, you know, a flood that no one saw because the pipe burst while it was vacant. Yeah.

Ben Bailey: Um. So I want to bring up. Squatters, which, you know, is something that it's a reality. I tell somebody, I work in property management, they go, that's the first thing they think of. They're like, oh, so you guys deal with squatters all the time? And it's like, not really. No. But it's it's top of people's mind, you know, they think about it and like you said, vacancies. Number one way to reduce that is like if people are living there, no one's squatting in there. Yeah. Um, so let's talk about. Squatters, as rare as they may be, but just kind of touch on that to appease all the people that ask me every time I tell them where I work.

Eric Dixon: Hilarious. Yeah. Yeah. So squatters, when you say squatters, first of all, you think like, in my head, maybe it's just me, right? You're thinking like, oh, old rundown house probably had boarded up window and they just, like, snuck in the back door.

Ben Bailey: Got off a train with a sack over a shoulder.

Eric Dixon: But. But what the reality is, is we're talking like good neighborhoods. You know that when you advertise a home online, a vacant home, like anybody could find a vacant house in your neighborhood. I promise you, in your neighborhood, it's not a house is for sale. House is for rent. Right. So if they're, quote, professional squatters and they're kind of working the system. Right. Um, those are squatters, too. They drive nice cars. They drive, you know, some of them. There is kind of the the homeless type of squatter type situation, but there's also the sophisticated squatter that they'll they'll bring a U-Haul truck and have the audacity to move in. Yeah. And then the other type of squatter we'll call it is people that have been scammed and they don't even they don't even know they're squatters. So, you know, they they saw the house on Craigslist for an advertised at a crazy good deal. They paid cash and the person who rented it to them had just broken in and rekeyed it to their own key and just stole two, three, $4,000 from you. And we've had it. Unfortunately, we've had some of these scams where we have to get the police over there like, Hey, you got to get out of here. They're like, What are you talking about? I just signed the lease with Joe. Joe over here. And it's like, Dude, Joe doesn't own the house, man. Like, it's sad you got scammed.

Ben Bailey: They're taking advantage of people that are. That are desperate, you know, that see this price and go, Oh, my gosh, I can afford to get into this house. You know, those are the people they're looking for. So it's so heartbreaking. But it really comes down to if it's too good to be true, you know, it's like too good.

Eric Dixon: To be true and you don't have to get a background check or a credit check to move in. This guy probably.

Ben Bailey: Said he'd rent this $4,000 a month house to me for a thousand bucks if I just show up and give him three grand.

Eric Dixon: Like, do you take check? No. Cash.

Ben Bailey: Yeah. Cash. Cash only Bitcoin, whatever. Yeah.

Eric Dixon: So and we deal with those and it's a lot of it's just a numbers game. Like the more properties you manage, the more years you're in the business you see it and it becomes more normal. Yeah, but it's like it's never fun and it's never like, Oh yeah, that was hilarious or that was great. It's like, No, dude, these are really sad. Yeah. Um, you know, vandalism and and squatters that are stealing and they're criminals, that's one thing. But we're talking about, like, families with kids and everything else that move in thinking I just got a great deal on this house, man. And, yeah, they just got scammed out of money. And not only is our client now like, Hey, my house is got moved into, it's dirty, I got to clean it and all that. But now this other family's on the street and they're out of their money. Yeah. You know, and so it's, it's it's a horrible situation, but it's a reality as a landlord again, um, we have great landlords and we manage their properties in a great way. I feel like and sometimes this stuff still happens because they're, they're just that's part of the market. Yeah.

Ben Bailey: And I think everything you do, if you're, if you're following the right steps, you're making those decisions. You're, you're mitigating things like this happening, you're lessening the chance. You know, people are less likely to move into a house where inspectors are showing up or there's somebody's painting or somebody's, you know, like cutting the lawn and stuff like that, like people showing up for showings all the time. Like if your house is just sitting empty because you're charging too much in rent, you're inviting.

Eric Dixon: Well, one thing you just mentioned, you said if there's showings all the time and it goes back to vacancy. Right. The whole point of the episode is if you price it right and there's high traffic and there's a lot of people in and out and it rents in a week or two, you're not going to get squatters, dude. Like, yeah, if we look at the ones we have squatters, the ones we have professional scams on all this stuff, they're the houses that are sitting for 30, 60, 90 days and the owners are stubborn on price or stubborn on. They will not do this. They will, you know, they won't they won't paint the house and it needs painted, dude. Like if you would just paint it, it would rent two months earlier and you could pay for the paint. Yeah. You know, so I mean, it sounds mean you're listening to this. Be like those people. There's no those landlords don't exist. I promise you, they exist. Just don't be one of those. Yeah.

Ben Bailey: Don't do that. Think it would be easy to get caught up in that and and we can talk about this in the next question here but like. When you own a property and someone's telling you, no, I want you to take in less money than you thought you were going to take in. You know, like, that can be a hard pill to swallow. Yeah.

Eric Dixon: Especially when you're like, No, I bought this place or I only. I only moved out of state to take this job thinking I could rent it for 2000 a month. If you're telling me it's 1700. Dude, my whole, my world, earth, whatever shattered, you know? And so it's. Dude, it is. It's hard. And at the end of the day, I promise you, once that that rent starts coming in, if it's a little bit less, it's better than nothing. Yeah.

Ben Bailey: Exactly. Do you want $1,700 or do you want nothing? Yeah. You know, like take the take the $300 hit. Yeah. Um, so that kind of brings us all around to tie this all up together here. I feel like this is, like, our fastest episode, but it's, you know, we're. We're hammering on it hard.

Eric Dixon: The key is just do all you can to not have your property vacant. And then. And then you can avoid all of these horror stories and and issues.

Ben Bailey: So. Let's say you have signed with a property management company. What should you expect them to do to minimize that vacancy? What are you paying for? Guess in your in your fee that they would minimize vacancies and avoid this stuff for you?

Eric Dixon: Yeah. And so part of the property managers job, it's not just to say, Hey, owner, how much do you want to list it for? Okay, I'll go ahead and execute on that. I'll list it on Zillow. I'll do this, I'll answer the phone and I'll do it. It's Hey, owner, what do you want to list it for? Oh, why is that? Why is that? Ben? Like, let me let me send you these rental comps in that neighborhood. Let me show you why that is. Either high, low or indifferent and get a strategy there really mean that's probably the best word for it is they just need a strategy of how you're going to market it. It's not it's like, hey, if you want to start high, that's fine. But in five days, seven days, if it's not rented, can we agree that we're lowering the price next week? Yeah. Like I don't want to have to twist your arm.

Ben Bailey: Oh, nothing. You know.

Eric Dixon: And I personally have done this. Want to say hundreds, but dozens for sure on my rentals as they come vacant. Over the last 15 years as I've owned rentals, is I've started high or no, this just backing up. So I'll train our property managers, right? We'll talk about it on the podcast. Hey, never do this. Never do this, dude. I'm the one, dude. I'll start high. You know, I'm like, Oh, do you know what? No is my property manager. I'm like, Hey, no, dude, I know you said 1800. Let's try two grand for a week. Yeah. And he's probably like, Are you serious?

Ben Bailey: But like, he's telling us, like, I'm not going.

Eric Dixon: To say anything because you're the broker, but whatever. And then two weeks go by and I'm like, I'm such an idiot. Like, practice what you preach. Put it at 1800 and at least overnight, you know? And so I'm learning too. And so I know for sure if I'm in the industry, I talk about it, I hear it, we talk about it, and I still start high and I still do these dumb things. Sometimes landlords that have that only deal with the vacancy once a year or once every two years or their first time ever. They have no idea. Like they haven't been through it. So your property manager has seen all these, right? Whether they manage 50, 100, 300 homes, whatever it is, they've seen these. So take their advice on that. They should be the expert. Um, as far as what you can proactively do, I would get a plan for price. So like I said, if it doesn't rent in a week, let's do 50 bucks. If it doesn't rent within ten days, maybe we lower it 100. Maybe we offer an incentive.

Ben Bailey: Like special A move in.

Eric Dixon: Special. You see that on apartments all the time. Big old banners, you know, like vinyl and how to do.

Ben Bailey: Them on a single family home, too.

Eric Dixon: You can do them on online. I was going to say on a house, it's probably, you know, you don't hang a banner on the garage, but you put it on the ad and you're like, Hey, two weeks free if you move in before June 1st or, you know, $500 off your first month's rent or yeah, you want to stand out. And that incentive that you offer or offering, typically it's not made to where you write a check. You just get a little bit less when they move in. But if they can move in a week sooner, they're paying that rent for that week. So it's like it makes sense just to be aggressive, offer an incentive, adjust the price. Um, it really, you know, depending on your property manager and what you're comfortable with and what they're comfortable with, you have to look at it like, what is my return on investment if I price at this price, Hi, this price, my medium or low price.

Ben Bailey: And like you said, if they're putting together a good strategy for you, yeah, they might come and say, hey, I ran comps. There's ten other rentals in this area. You know, like we got to stand out. Even an aggressive price might not be enough. We need to do this incentive or whatever.

Eric Dixon: And there's nothing that hurts worse because it's hurt. When I was a property manager, it hurts when houses aren't renting. I'm like, Hey Ben, it's been another week. Yeah, stuff is great, you know, And and then the owner comes up with the idea like, Well, hey, Mr. Property Manager, why don't we lower the price today or something? And it's like, Oh, yeah, yeah, that'd be great. So your, your property manager should be the one that is proactive, you know, and saying, hey, do this, do this. But maybe it's the landlord. It takes it takes a vacancy or two for you guys to learn each other and understand. Um, I would just say the, you know, simple things too, like get fresh photos, get a 3D tour. If you have self showing, technology opens the floodgates, you know, like we do self self tours and we have tours all day Saturday, all day, Sunday nights after business hours, mornings before business hours, you know, all these times that leasing agents conventionally can't show homes, you know, leverage technology and just make sure that your property manager and your vision are aligned. Like if like for me as a landlord vacancy, I, I firmly believe vacancy is my biggest expense. So I'm just like at lease renewal if you want to up rent. But they're like, hey, they, uh, you know, I know you want to up $200, but if it's 100, they'll stay. Like, you know what? I want them to stay. Just do 100 instead or yeah, you know, vacancy just hurts so much worse than 50, 100 or even $200 a month. So just make sure your interests are aligned. You know, if the landlord is like my top priority is high rent, sometimes it's going to take a lot of vacancy to get there. Yeah, a lot of times it's occupancy and quality of tenant and that's different than achieve highest rent. Sure.

Ben Bailey: And I know for us not to toot our home because a lot of companies do this, but we don't charge our monthly fee.

Eric Dixon: Yeah. While it's vacant.

Ben Bailey: While it's vacant. And so so we're incentivized as well to get somebody in there.

Eric Dixon: No. And we feel like our interests are aligned where it's like we don't get the leasing commissions and fees until it's leased, right? We don't get the monthly management until the tenant starts paying rent. And so it's like, no, we want at least just as bad or more than you do sometimes. Like sometimes the landlord's like, Oh, I'm totally good. I don't have a mortgage. It's easy. And we're like, Dude, we don't like working for free. So can we like, rent this thing? Can we can we get this thing going?

Ben Bailey: So, all right, well, feel like we flew through that, But, um, yeah, it's. If you take anything away from it, it's a void vacancy, like. It's no good.

Eric Dixon: You The only other thing I just thought of is the if you can strategically try not to be vacant in certain times of the year, like for at least holidays are probably a national thing. Like, you know, as far as like Christmas, Thanksgiving, that's a kind of a hard time to rent. Yeah. But it's even just around like your, your area if you have busy, you know, festivals and different things, it's like there are different times that you can work around. Most of the time you're going to want it between school years. And so what what that means is you've got to work around some some of your renewals to say, Hey, it needs to stop ending in November. Can we do an 18 month renewal, get this thing back on track right to where it's in May? And then it's it's easier to have a vacancy between May and August than it is October and January for sure.

Ben Bailey: Mean especially in areas with heavy snow or something like that just adds to it. Not only is it the holidays, dude, I didn't even.

Eric Dixon: Think whether because Arizona I mean it's hot but you can you can lease houses 12 months a year. No problem. Yeah. Oh, dude, that'd be horrible. Snow.

Ben Bailey: I was shocked to learn that we're busy during the summer. I was like, No one's going to move during the summer. And it's like people do it in Arizona. It's like we get busy people.

Eric Dixon: They just move at like 10 p.m. to 4 a.m. when it's only a hundred degrees in the summer. Yeah.

Ben Bailey: 100 and sunlight. All right, well, that's it for us this time. Be sure to follow the podcast, Subscribe and leave us a five star review wherever you listen. And we'll see you guys next time. And.