Many would-be landlords love the idea of bringing in “mailbox money” – income generated from the rent they receive from tenants with only simple upkeep required.
If you’re a landlord, at some point, your property will be vacant, and that mailbox of yours will be empty. What will you do then?
Vacancy rates for rental properties in the U.S. have been below 10 percent since 2010, and as of the second quarter of 2018, they were just 6.8 percent, near the lowest levels in the last eight years, according to the U.S. Census Bureau. Low vacancy rates are in large part due to a nationwide housing shortage that has persisted in recent years and is due to the halt in new construction that occurred during the Great Recession and the slow pickup since.
But low vacancy rates nationwide – or even lower vacancy rates in your city – aren’t a guarantee that you’ll find a tenant for your investment property immediately upon purchase or after another tenant gives notice that she’ll be moving out.
The first thing to know about having an empty rental is how long you can sustain a property without tenants. Then it’s a matter of leveraging the tenantless period to reduce your chances of frequent or lengthy vacancies in the future. Here’s what you need to know.
You may already own the rental property, or you may still be shopping for the right one, but it’s not too late to do the math on how long you can afford to have this valuable source of income sitting without tenants.
The vacancy rate references the amount of time throughout the year you could expect your property to be unoccupied and not collecting rent. With a 5 percent vacancy rate, for example, your property would be vacant just over 18 days out of the year.
“You’re basically losing a month’s worth of rent a year on vacancy,” explains Daren Blomquist, senior vice president of communications for real estate information company ATTOM data solutions.
Considering a 14 percent vacancy rate, that’s just over 51 days without rent, which you would likely round up to two months. You need to be sure you have enough financial cushion to cover the cost of utilities, necessary repairs, possible renovations and marketing for two months without income from a tenant. Spread out over a year with different, short-term tenants, you could be looking at closer to three months’ rent lost.
As long as you have the financial ability to handle those vacant months, you can handle the higher risk. If not, this may not be a good investment for you to take on. Or maybe the monthly asking rent you’ve envisioned is too high, and you need to lower the rate to help ensure there are more renters who can afford to live there.
Reducing Your Chances of an Empty Rental
If you find yourself without tenants, you can do a few things to help shorten that time and reduce the chances of enduring a lengthy vacancy period.