Landlords - Are You Prepared for Massive Vacancy?

Question

I have been doing this LL thing for 6 years now.  My average annual vacancy rate for my business is around 7%.  That is taking all the occupied weeks and dividing by all of the available weeks (X100).

I usually have one or two vacancies a year.  No big deal.  This year, when school dismissed, I had 5 renters move out at the same time for various reasons.  Only one move out was contentious, non-pay, but they did get out.  The rest gave notice.

Now, I have never had 5 vacancies at one time and do not, normally, have the staff to get them all ready right away.  Most need paint, sprucing up, due to long term occupants.  All need more than just a clean up.  One needs plumbing work due to pipe corrosion.

We will be OK.  I have hired some people to get over this bump and it all should be resolved in about a month.  It's just more logistical/management stuff than I have had to handle at one time.  Lots of questions to answer every hour.

Also, to ad to the pressure, I have been working on expanding the biz.  This challenge allows me to show my investor/partners how this negative situation will be resolved in a timely manner.

My question is, what if it happened to you?   Would you be ready for a significant number of vacant units simultaneously?

Al Williamson · Answer

Nice topic. Thanks everyone for the tips. Greg B. I was in your shoes 3 years ago. It was a long dry spell for me - prayerfully you'll have faster lease ups.

Anyway, that terrible time inspired me to search for a way to pay the bills WITHOUT tenants. Yup, for the past 3 years I've been trying to solve this riddle. Even started a blog to help me stay on track.

The good news is that I've conceptually figured it out. I'm implementing my plan and will share details once I'm further down the line.

Again, I wish you super fast lease ups, but if that doesn't happen, take time to innovate.

Don Konipol · Answer

Back in the early 1980s I owned 43 SFRs.  If I had had many vacant I would be squeezed because I was heavily leveraged and had little in cash reserve.  Now I own 12 investment properties, all free and clear, and have a significant amount of cash reserves.  Interesting, I sleep about the same!

Aaron Mazzrillo · Answer

I had 6 house vacancies going into spring;
1 eviction
2 new purchases
3 regular move outs

It was tight, but the new acquisitions didn't help make it any easier because of the rehab costs. I sold off the house I did the eviction on. It was the dog of my portfolio. Got everything else up and running and now we're back in the game.

I have 2 vacant houses and 2 vacant apartments at the moment, and I just closed on another rental last week, but it came with a tenant. The apartments are vacant almost every summer because they are mainly leased to students so it is expected. Looks like one of the houses has a solid tenant lined up. The other house I served the tenant notice to move. She was section 8 and housing lowered her rent a few hundred. I have it back on the market for a few hundred more than what she was paying so it will definitely pay off.

Chris Masons · Answer

Great stories and great advice. When I bought my first property in 97 it was a 4 family. Everyone said to me what if you have 2 or 3 people move out what will you do? At the time I had very little cash reserves due to the big purchase. I Was 24 and put down almost all my life savings at the time  lol

While I didn't have an answer I just thought I would cross that bridge if and when I got to it. Fortunately I didn't get to that bridge.

6 houses later I have cash reserves to weather a storm such as that now. I have 5 investment properties with 13 doors the most I had vacantt at once was 2 while it was nerve racking it's jut how things are and is a part of the business.

As people said you do the best you can and while it killsl you to use your cash reserves to pay mortgages when tenants are suppose to be doing that sometimes thats how it goes....

It coud always be worse.

Chris

Greg B. · Answer

Thanks for all the comments and suggestions guys.  I already have one of them filled and we are working everyday to fill the rest.

Kyle K. · Answer

Great topic. Right now, absolutely because I have lots of cash, Hugh income and a relatively small portfolio. If I purchase another property in a couple months, I will be stretched if my whole portfolio went vacant. But that's a small probability and one that I can handle. But this topic gets me thinking

Chris Clothier · Answer

Don Konipol that was a classic ending!  Very funny line (to me anyway).  I had a lot of trouble sleeping when I was over extended and over-leveraged on a group of properties that were all deep under water.

I think Greg B.'s point is that if you think you are set to never have massive vacancy at one time, you could be lulling yourself into a comfortable stage, only to be woken up when your SFR's hit you on the head like a 2x4.  Be prepared - always for worst case scenario.

J Salter · Answer

I'm dealing with this problem now and it is heart wrenching! But i only have a few small properties and a good manager. As mentioned, the difficult thing is refreshing the living units in time to show them and seeing the revenue take a nose dive.

Let alone if you have to do evict paperwork... :( this is why I'm creating a super clear but fair lease to prevent and mitigate volatility/turnovers....

Paul M. · Answer

I am always working on projects on the properties to keep them looking good and mechanically maintained.  This way I avoid the expense of vacancy.  I don't wait until the tenants move out except for really serious renovations.    Tenants tend to like that I'm working on maintaining their places.

The idea of having a lease turnover in the winter would be terrible for me, your outgoing tenant might not to move, but if they do move, It would be hard for me to find a new person.  In my area, the most popular lease start date is Sept 1st, and in general I try to have all leases start that date because that is where the most demand is.

Robert Yuhanick · Answer

Greg,
I had the same happen to me early on in my business.  I had four sudden vacancies out of the nine total units I had.  It took six months for my business to recover due to the drawn out circumstances.  One unit had to be completely renovated!
I discovered that, in order to get through that situation, you need to build up a comfortable buffer.  Where I was at, I didn't have enough income to cover all the bills and I went through my buffer a little quicker than I thought.  Tenacity helped us through as well as some open communication with creditors.  I learned that I needed six months worth of cash surplus to feel comfortable.  I think it will vary with everyone and it is hard to gauge where you're comfort zone will lie

Landlords - Are You Prepared for Massive Vacancy?

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