I own ten rental properties and I focus on keeping my homes rented and avoiding vacancies as much as possible. I have had great cash on cash returns on my rentals because I have had so few vacancies. I think I have been lucky to have some great tenants, but I also do many things to keep my houses rented. I don’t always try to rent my homes for the most money and I am very proactive when a lease is coming to an end.
For more information on my investments and strategies check out my complete guide to purchasing long-term rental properties.
How much rent should you charge?
It is difficult to determine how much rent to charge, but I wrote an article about how to determine market rent with much more information. It is extremely important to know how much your home will rent for and I have leaned that it is not always smart to rent a home for the highest possible rent you can charge. If you rent a home for the absolute most money, you may actually lose money than if you had rented the home for less.
How can charging more rent can actually cost you money?
The more money you charge for rent the less interest you will receive and the longer it will take to rent. If you end up charging too much for rent and you have a house vacant for a month because of it, it will cost you money. For example, if I want to rent a home for $1,400 and it takes me a month to rent that home, that vacant month costs me $117 each month. If I had asked $1,300 a month and I was able to rent the home immediately I would actually make more money on the rental. By renting the home for $1,400, but by losing a vacant month I am only making $1,283 a month.
When you charge too much for rent it limits your potential tenants
I have tried to rent a home for too much money before and it did not work well. Not only does it cost money because it takes longer to rent, but it limits the potential tenants for the property. I have had to choose between a couple of mediocre tenants when I charge too much rent. When I charge the right amount of rent or even slightly less I am able to pick between many great tenants. It is much easy to manage a home that has great tenants that always pay on time than it is to constantly ask for rent and worry about damage to a property.
Mediocre tenants will increase vacancies
If you have to choose a mediocre tenant because you are charging too much rent, you will have many problems. The reason a tenant will pay top dollar for rent is because the house is awesome and unique or the tenants have problems getting anyone else to rent them a home. These problems may include a bad rental history, pets, bad references or bad credit.
If a tenant has these issues, there is a better chance they will damage the home. There is also a better chance the tenant will fall behind on rent or even have to be evicted.
To avoid tenant problems, proper screening is vitally important and we now use SmartMove for credit and background checks.
Communicate with your tenants constantly if they are late on rent
When a tenant falls behind in rent, it can turn into a bad situation very quickly. If you don’t let your tenant know it is a serious situation and let them know exactly how much they owe, it can become a much worse situation. Usually tenants who fall behind on rent do not calculate how much they owe and assume it is less than it really is. The further behind a tenant gets in rent, the smaller the chance is they will ever catch up. If the tenant never hears from the landlord, they may even assume it is not a big deal that they fell behind in rent.
Be proactive when a lease is coming to an end
Choosing great tenants is only one way to keep a home rented and reduce vacancies. Tenants are going to move out at some point, no matter how great the house is or great the landlord is. When a tenant’s lease is coming up for renewal, the landlord needs to communicate with the tenant to see if they want to stay or move out. If a tenant is moving out, a landlord does not have to wait to advertise the vacancy until the tenant is out and the house is perfect. An ad can be placed on Craigslist before the tenants move out, and if the property is in good shape it can be shown as well. Most tenants will have no problem letting the house be shown as long as you respect their time. I always try to schedule multiple showings at once to avoid constantly bothering the tenants. By using this strategy, I have been able to avoid having a home vacant for even one month between tenants. If I do have to wait until a tenant moves out, I will advertise the home right away and start taking names of potential tenants. To make this strategy work, you have to price the home right.
You do not have to start a lease on the first day of the month
Sometimes I do not have a home ready to move into on the first day of the month, even though that was my goal. I may have repairs that need done or another issue that causes a home to be ready on the 5th or 15th of a month. I can still rent that home immediately. If you price your rental to attract a large number of applicants, then there is a better chance you can find a tenant who will want to move in as soon as possible. The tenant may not even want to move in early, but they will to secure the rental and make sure they do not lose out to another renter. When I rent a home in the middle of the month, I prorate the rent for the days the tenant will be living in the home until the first of the next month. For more information on renting a home check out how to rent a home fast.
Keeping a home rented and avoiding vacancies starts with choosing a great tenant. Charging top dollar for rent may not be the best choice when you are trying to find a great tenant. Once you have that great tenant in place, be proactive when their lease is coming to an end. Don’t be afraid to try to get the home rented again as quickly as possible. If you use a property management company make sure they are being proactive to rent your homes as quickly as possible as well.
For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.