Cost of Vacancy
Rental property owners certainly understand that vacancies stop revenue, but many do not understand exactly how much money it costs them each day the property is vacant. Failing to understand your personal cost of vacancy will not only create long term financial issues for your business, but also potential problems for your family and wallet. You must know your numbers and make all decisions based on numbers. Do not base your finances on your emotional responses. Here’s how it works: Vacancy cost is a function of time. The more time a property sits vacant, the more money it will cost you. Below is an example of a single family home renting for $1,000 per month.
- Monthly rent = $1,000
- Daily rent = $33.33
- Annual rent = $12,000
- The maximum annual rent is $12,000.
- If the property is vacant for one month out of the year, annual rent falls to $11,000 or $917/mo.
- If vacant for two months, annual rent would be $10,000 or $833/mo.
- Each day the property sits vacant is costing the property owner: $33.33
This does not account for other costs you must continue to maintain while the property sits vacant. For example, the utilities must be turned on and running. Many property owners think that while no one is living at the property, the cost of utilities will be negligible. Quite the contrary. If the property is vacant in the winter, the heat must be kept at a reasonable temperature to keep pipes from freezing. Furthermore, the temperature must be set within a normal range during all seasons because the home needs to feel inviting to prospective tenants. The comfort of the home is part of the curb appeal. For example, realtors will “stage” vacant homes with fake furniture and wall hangings to give it a homey feel. Some home sellers even go so far as to bake cookies right before a showing to add the aroma of “home” to the experience. While I am not suggesting staging a home or baking cookies for a rental property, I am saying that the A/C and heat must be kept within comfortable levels, and utilities must be added to the cost of vacancy.
You also have additional risks during vacancy such as vandalism, storm damage, or a water leak that goes unreported. Rental property owners who fail to account for such possible major expenses are simply setting themselves up for setback and failure.
In the goal achieving process that accompanies successful rental property investment, you must have a sense of urgency. Without a sense of urgency, tomorrow becomes next week which becomes next month and so on. Your work will always expand to fit the time allocated for it. Understanding the daily cost of vacancy of your property will give you a higher level of urgency when you experience vacancy.
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I had the opportunity of working with Real Property Management over the course of a year as a tenant of one of their managed properties in Sioux Falls, SD. They were more than accommodating and extremely helpful whenever we had an issue. We were always treated as a first priority. Based on firsthand experience, I would highly recommend them to any property owners looking for a top-notch property management team!
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