PRIORITY #1- FILL THE VACANCY
The number one priority for landlords is to fill any vacancy, because cash flow is the “life blood” of the landlording business. When properties are all filled, you have maximum income to help you cover all your expenses, management or maintenance challenges and also keep your property upgraded so that the properties continue to keep good residents longer and attract the most ideal residents.
Without cash flow, it is so easy to go into a downward spiral of poor property upkeep, lower quality residents, unpaid rent, evictions, vacancies, inability to make mortgage payments, and eventually forced to sell or give up.
When it comes to cash flow, lots of shortsighted landlords focus on what I consider the easy stuff, like how to cut costs through maintenance and repairs, but they somehow forget or don’t realize that they are losing a lot more money throughout the year from vacancies and uncollected rents (from no-pays and evictions).
The reason I say that repair issues are the “easy stuff” is because fiddling with a minor repair problem most often can be more easily outsourced to a contractor or handyman, unlike finding someone to help you fill a vacancy. If a vacancy is to be filled, it can require ingenuity, persuasiveness or other landlording skills that you personally will need to focus your thoughts, planning and energies.
I’m not saying any of this to offend those who do their own repairs. I’m speaking as a business owner. The goal of a business owner is to have a business that operates at maximum profit. A vacancy is costing the landlord far more money sitting empty than a minor repair being attended to (unless of course that minor repair if left unattended, like a pipe leak, can lead to much greater property damage). And yet many landlords I know have vacancies that have been sitting empty for weeks and even months, but the landlord still has minor repairs on the top of their “To-Do” list, instead of filling the vacancy.
If your properties are filled with paying residents, you can pay someone to get the minor repairs done. Even if you mistakenly over pay on a job, you will still have excess cash flow for other matters. While cutting your costs is helpful, I want to challenge landlords to see that their first priority should always be to fill any vacancy. Just like in the restaurant business, it’s vital to “turn tables” as quickly as you can and seat new customers. In the rental business, once you have a vacancy, it is vital to fill it. That’s why over the years, I continue to publish articles and ideas to help you fill any and every vacancy within 72 hours, or at least within 7 days to maximize your rental income and to stay on track toward building you net worth with rental properties. Maximum income allows you to survive in this business and handle “bumps” in the road on your journey to financial success.
Let me be clear. When I say priority number one is to fill vacancies, that does not mean that I don’t give great concern toward “stopping the bleeding” and retaining or keeping current residents longer, satisfied and paying (which I consider the second biggest priority in this business). In fact, some would argue that stopping the bleeding is equally if not more important than filling vacancies. However, when you have maximum cash flow coming in, I have discovered that it is far easier to keep current residents happy, because you will have money to make sure all their concerns are quickly handled and you will have enough income to regularly upgrade the look of their property on both the exterior and interior. And all this MUST be done, or else you will find yourself dying with not enough cash flow “blood” and not able to retain whatever little bit that you do have.
HOW DO YOU ASK A GREAT RESIDENT TO LEAVE?
A landlord had a great 9-year resident that kept the home EXTREMELY clean inside and out (practically rent-ready). The resident was always on time with rent (even through 2020 during the height of Covid-19). And they took care of minor repairs, furnace filters were changed regularly, the yard was in tip-top shape with mulch. However, home prices have also escalated so much, that landlord now wants to sell the home and cash out. This would likely be a retail sale to a first-time buyer but it’s tough to sell a home with resident in place to a owner-occupant buyer. So, the landlord is looking for ideas on how to accomplish a smooth transfer (on asking resident to move), without it getting nasty. The landlord would like to keep the transfer as friendly as possible.
A fellow landlord suggested the following wording to include in a letter to the resident:
Dear Resident:
It seems all good things must come to an end. We have decided that it is time to sell the property and move on. You have been a truly exemplary resident but we do need to sell.
Let’s discuss what will work for both of us. What sort of terms will work for you? We want to make this as easy as we can for you. Would a 60-days notice to vacate work? That, and we would provide you with a letter of reference for your search, and answer any questions from any prospective landlords.
Sincerely,
Property Manager
Other landlords suggested additional ideas, including one landlord who offered to rent a moving truck for the resident.
FIVE YEARS OR MORE!
As part of your screening criteria, one landlord wondered on our landlord forum last week if his requirement of prospective residents to provide a minimum of FIVE years of rental and employment history on their application was enough. A fellow landlord responded with his similar criteria:
“They (the applicants) have to fill out the application with five years’ rental history that HAS TO MATCH their credit report’s ‘Last Prior Address’ going back years on the report. If there is an extra listing on the credit report not listed on the application, I’m going to call the owner/manager and confirm details.”
I agree with another landlord who looks at rental history to see HOW MANY different places or addresses an applicant has lived. A big red flag for him is to stay away from “frequent movers”.
A fellow landlord brought up another factor that landlords should also be concerned regarding employment, not just the “history” but the “future”. For example, asking employers about the prospect of future employment.
Editor’s note: I like asking employers about likelihood of future employment. If you are asking the employer other questions, why not add that question. No, all employers will not answer, but some will. I realize circumstances change, so I don’t put much weight on a positive response, but every now and then you may get a frank and honest response that says future employment (for various reasons) may be limited. That’s the occasional response that I listen for and worth asking the question even if such a response is rare.
The tips in this column are shared by regular contributors to the popular MrLandlord.com Q&A forum, by real estate authors and by Jeffrey Taylor, [email protected]. To receive a free sample of the Mr. Landlord newsletter, call 1-800-950-2250 or visit their informative Q&A Forum at LandlordingAdvice.com, where you can ask landlording questions and seek advice of other landlords 24 hours a day.