Accepting Lower Rent

[Steven Pierpaoli]

I've owned a quadplex for almost 2 years, land-lorded by a property manager since Day 1. I've had one of the units vacant the entire length of my ownership - the initial vacancy was filled, then a troublesome tenant moved out. This second vacancy has spanned nearly a year.

I have been challenging my property manager for several months on filling this vacancy. Today, I was asked by the PM if I would take $700/mo. for the empty unit, where $800 is the advertised rent. Prior to purchase 2 years ago, I had determined that a reasonable rent was $700-850, with the caveat that these are a bit hard to estimate as 3-bedroom units in a 2-bedroom market, with the units a bit more upscale that typical in the neighborhood. Two of the other 3 units rent for $800, with a legacy tenant leased at $650.

Should I take the $700/mo.? I think the risk is that this tenant stays awhile and I earn what I think is below market - but maybe my estimation skills are off. I am fortunate in that I break even on expenses and debt coverage with only 3 units occupied - this 4th rent is essentially my monthly cash flow.

Also, and related, am I being impatient with my property manager? Should I take the $700/mo. and look for another service provider, or do I have unreasonable expectations?

Thanks for any advice.

[Kyle J.]

A few thoughts.  First, there's no excuse to have a vacancy for 1-2 years.  That's just unacceptable.  There's either something wrong with the unit or the rent amount, or the PM isn't doing their job.  And I guess if there is something wrong with the unit or the rent amount, then the PM should have told you that already and helped you fix it.  So any way you look at it, in my opinion, the PM isn't doing their job properly.

I've never had a vacancy over 2 weeks, but I manage my own properties.  If I had a paid PM taking years to fill a vacancy, I'd definitely be looking for a new PM.

I'd also definitely try to confirm what an appropriate rent amount is.  You say that you determined that a reasonable rent was $700-850 prior to purchasing it two years ago.  A lot can change in two years.  Make sure that's still accurate.  Even if it is accurate, that's a fairly large range at that price point.  If someone can get a comparable unit for $700, they're not going to pay $800 and certainly not $850. 

Get a few opinions from other PM's in the area to see what they recommend to rent it at.  You could also check a few different websites like Craigslist, Zillow, Rentometer, Hotpads, etc to get an idea of what others are charging in your local area.  And maybe read BP's own Ultimate Guide to Fair Market Rents.

Ultimately, it's your call on whether or not to lower the rent amount.  Personally, I'd rather rent it out for $700 then to have it sit vacant for $800 year after year.

Just some things to think about.