All property owners look at the return on investment (ROI) when buying or maintaining rental property. The ideal is a positive cash flow, a tax deduction, and an increase in property value. An investor certainly wants to realize all three of these advantages. However, there are times when this is difficult.
Having a long vacancy can reduce a positive return or even produce a negative one. There are markets or other conditions that can simply create a long vacancy. When this happens, there are pitfalls to avoid and holding out for sound tenancy can sometimes be the least costly alternative affecting the bottom line.
A common mistake landlords can make in any rental market, is insisting on obtaining an excessive rental price. This alone can increase the vacancy period. Most properties can rent quickly for a higher rent if an owner looks the other way, ignoring sound screening practices. It is possible the tenant will turn out to be the “ideal” person to rent the property, but not likely. What intelligent, well-qualified tenant is going to pay more rent when there are similar properties available at a lower price?
Consider what can happen if you ignore the warning signals. Ignoring bad credit, poor or non-existent landlord history, and inadequate income can lead to non-payment of rent, eviction proceedings, drug problems, and damage. That high rental price becomes insignificant if an owner has to pay legal fees, repaint, replace carpets, and do major repairs. It does not take long to have damages that exceed the security deposit, particularly if there is already lost rent and attorneys’ fees. Drug problems can have bigger liabilities and can cause serious fines in the thousands now that legislation is becoming tougher on property owners who “overlook” drug trafficking in their property.
What approach should an investor pursue?
- Look at the market as objectively and unemotionally as possible. It is an investment and, like the stock market, rental properties have their peaks and valleys.
- Ask for a reasonable rent that will compete with similar properties on the market.
- Make necessary repairs to entice the good tenants to want to rent your property.
- Provide incentives, if necessary – they may be less costly than paying the mortgage without the benefit of any rent.
- Rely on your property manager to find the right tenant. Do not panic and give into renting the property quickly at all costs.
- Be prepared to ride this vacancy out to obtain the right tenancy and protect your investment. It is better to adjust the rent, offer incentives to reduce the vacancy, or even accept loss of rent rather than suffer through unpaid rent, attorney fees, and damages, not to mention the emotional distress of a bad tenancy.
Our company wants the best tenant for your peace of mind as well as ours. If concerned, call us to discuss reasonable alternatives for renting the property without compromising your tenancy and investment. Remember, the property will rent – it is just a matter of time and the right tenant really is “worth the wait.”