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8 Ways to Reduce Rental Vacancy Rates for Better ROI

by Kevin Kiene

Vacant rental properties ruin the return on investment properties – period.  Hazard insurance, mortgage payments, property taxes, utilities, break-ins, vandalism, maintenance, and landscaping are just some of the costs associated with vacant rental properties.  Reducing your vacancy rates to a bare minimum is extremely important, if you intend to have a successful real estate investing career.

The following eight tips will help minimize vacancy rates, and thus maximize ROI.

1. Before You Invest… Research
Obviously certain areas are better for investing then others; research the neighborhoods you are considering for investment.  Speak with local Realtors, fellow investors, property managers and anyone else who is knowledgeable about the area.  You must find out if the neighborhood has a high or low vacancy rate, if there are currently an oversupply of other rentals nearby and what current market rents are in the area.  Rental properties located in areas where there is a plenty of foot traffic are often easier to rent than lower-visibility properties; prospective tenants who see a “For Rent” sign are already familiar with the area and the exterior of the property, and like them both enough to call you.

2. Price Right
Pricing your rental unit properly is key; “guesstimating” what the market will bear is never good enough.  You must know exactly how to price your investment so that you are maximizing on both your return and maintaining a competitive price.  Don’t just research similar local properties, but tour these other rental properties in the neighborhood and speak with local real estate experts.

3. Smart Advertising & Tenant Screening
When advertising your rental property you must think outside the box, and outside of the advertising that reaches you.  You must consider where your rental is located and what types of editorials/media outlets your possible tenants may read.  For example, you use the internet, but your potential tenants may not even have a computer.  Your rental property may be located in an area where English is not the first language, so consider carefully how people interested in this area go about finding new homes.  And of course, screen tenants very aggressively – bad tenants will have to be evicted, leading to higher vacancy rates!  (For more tips on this subject, see our article on rental advertising and tenant screening)

4. Long-Term Lease Agreements
Longer-term rentals will be vacant less often, as their turnover rate is inherently lower.  Additionally, the longer tenants reside in a property, the deeper their roots grow.  Incentives can work wonders: for example, try offering a reduced rent amount or lowered utility bills for a two-year lease term.  Remember, maintaining filled rental units is the goal, and it tends cost far less to offer an incentive than it does to carry a vacant rental unit month after month… incentives work!

5. Rent-to-Own/Lease Option Agreement
There are many advantages to marketing your rental property as rent-to-own, as homeownership is ideal for many, and offering a lease option agreement will likely attract a higher-caliber tenant.  Additionally, rent-to-own tenants will have a very high incentive to pay the rent on time – maintaining their eligibility to purchase.  Rent-to-own tenants are also more invested in the rental unit and will treat the property with more respect.  And last but not least, you can sell the property without paying a real estate agent’s commission!

6. On-Site Management
Larger, multi-unit properties statistically fill vacancies faster with on-site property management.  This is something you should certainly consider, as you may even be able to compensate the property manager with subsidized or free rent instead of paying them out of pocket.

Landlord Offering Flowers to Keep Tenants7. Responsiveness to Tenants
Whether the tenant is calling to report a pest infestation, functional problems, repairs or just to request an upgrade, the landlord/property manager should respond immediately.  Happy tenants are far more likely to stay put and not move, leading to lower vacancy rates and higher long-term profits.  Even if the owner or manager’s decision is not to act, they should communicate that decision as quickly as possible to the tenants to avoid misunderstandings and false expectations.

8. Be Proactive with Transitions
Before tenants vacate, start showing the unit to new prospective tenants, in hopes of a seamless transition from one tenancy to the next with no vacancy.  The day prior tenants move out is the very same day your handyman/contractor should assess repairs and begin refreshing the rental property.  Every day that passes while the contractor “gets around to it” will cost you money; making your investment property a liability, not an asset.

Start advertising, print out a stack of rental applications, and remember the big picture: minimize vacancies and maximize the quality of your tenants, and you will be well on your way towards a profitable rental business!

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