Essentially, what you are selling is time. You must realize your time is a valuable asset that other people are willing to purchase from you; it would be a detrimental flaw on your part to give your time out for free. As the saying goes “Time is money,” and when you train your mind to think this way, then we can begin discussing how to maximize profit from your rental property.
When you consider property vacancy, you need to realize that vacancy is actually theft – time theft. Every single day your rental property sits empty, a shoplifter by the name of “Vacancy” is stealing goods from your business. You must accept that this theft exists, and you must understand how to fight against it.
The theft of time will attack in a number of different ways, but the first is an empty property that just sits there eating up your money. In other words, you don’t have a tenant. The only solution to fight against a true vacancy is to rent the property to the right tenant as quickly as possible. The question you must ask yourself is, “How can I get my property rented to the right tenants faster?”
Just as businesses spend money to protect their property from theft, so too must landlords spend money to reduce vacancies, or time theft. The Bottom Line: It is better to spend a large amount of money for a short period of time than a small amount for a longer period of time.
For example, you could either spend $200 on one month of advertising or $50 for 2 months. In order to make the best decision, you must calculate the cost of vacancy into both the costs and the time frame of your advertising campaign. Let’s say you are renting out a property for $1,000.00 per month. If you spend $200.00 on advertising for 1 month, the actual cost is $1,200.00 (1 month vacancy plus advertising). If you opt for spending less and choose the “cheaper” $50 option, it might actually cost you $2,050.00 (2 month’s vacancy plus advertising). There is a point where more advertising has a diminishing rate of return. However, when in doubt, opt for more advertising, not less.
Investing in good advertising can also reduce other types of rental theft, such as an economic vacancy and tenant damage. Simply getting your property rented is not a win in and of itself. What matters most is finding the right people. When you fill your property with a tenant that doesn’t have capacity to pay, you have what is called an economic vacancy. An economic vacancy is where the tenant is physically occupying the property, but is late paying or can’t pay for a period of time. Proper advertising helps limit this theft by increasing the likelihood of placing a good quality tenant in your unit. Good advertising increases demand for the rental and thus increases the pool of applicants. This allows you to hand-select the most financially responsible tenant for the unit instead of accepting a mediocre applicant who may end up not paying you.
Limiting vacancy can also make the difference between a profitable return on investment (ROI) and a negative ROI. For example, an investor purchases a $150,000 single family home and finances it with 20% down. In this case, the investment is $30,000. If the investor wants to see an 8% annual positive cash flow, he would expect an annual ROI of $2,400 ($2,400/$30,000 = 8%). If the market rent for the property is $1,600, the investor would receive a 0% annual ROI if the property was vacant for 1.5 months. In other words, the difference between a profitable investment and an unprofitable investment can be as little as a month and a half of vacancy. Those 45 days on the market pass by very quickly.
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