Author Topic: Vacancy assumptions  (Read 3273 times)

ChpBstrd

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Vacancy assumptions
« on: December 15, 2016, 01:38:00 PM »
I have no rental properties, but as I evaluate them, I assume only receiving 10-11 months of rent per year. This assumption may be limited to my experience in my geographic area, or the working-class properties I look at. With that assumption, the prices in my low-cost area appear unjustified.

Experienced landlords: What is your actual long-term vacancy experience? Also, is that at the high, medium, or low end of the market? And where?

v8rx7guy

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Re: Vacancy assumptions
« Reply #1 on: December 15, 2016, 02:27:20 PM »
I have been renting for 8 years and have only experience about 1/2mo per year vacancy on average.  We have a very hot rental market, however.  After a tennant gives us a one month's warning that that they are going to leave, we start showing the unit with their permission (though it is also written into the contract).  This helps with turnover and we really only lose a fraction of a month here and there.  We did end up with a bad apple once that we needed to evict, we lost a full month with that situation.  But for the most part, no issues keeping the units full.

Drifterrider

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Re: Vacancy assumptions
« Reply #2 on: December 18, 2016, 02:36:51 PM »
My family has been in residential rentals (SFR) for 60 years.  We have rarely had any vacancies of more than the time it took us to paint and clean. Our current long term tenant has been there 24 years.  We just renovated two houses and had some long term vacancy but that was because we were the delay.

I have a SFR.  My prior tenant gave a 45 day notice they were moving for work (mid lease).  The new tenants moved in two days after the old tenant moved out.  The PM took the one day for their inspections. I didn't lose any rent.

The greater the lack of decent affordable housing, the shorter vacancy term you will have.  In my market, 40% of people rent.  If you are expecting your tenants to move yearly, reevaluate your pricing structure.

And remember, the 1% rule and the one month rules are general rules.


MicheleCooper90

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Re: Vacancy assumptions
« Reply #3 on: December 19, 2016, 05:47:35 AM »
I have been renting out for 3 years now and I never had any vacancy issues. The tenant would already give us a notice beforehand if he is about to leave.  Searching for a new tenant can be a bit stressful because many tenants can be completely dishonest in their applications and they often lie about their employment and credit ratings.

Ebrat

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Re: Vacancy assumptions
« Reply #4 on: December 19, 2016, 09:49:45 AM »
We've had our rental for almost 4 years, and have our second set of tenants in there right now. The PM had someone in mind when we first rented, so they moved in right away. I think there was a 3-week gap between tenants are the first ones moved out (found them right around when the first set moved out, and they moved in a few weeks later). Our rental market isn't great, but it's pretty good. I think a lot of it is pricing right for the market.

Berubeland

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Re: Vacancy assumptions
« Reply #5 on: December 19, 2016, 09:16:55 PM »
It depends where you are and what your market is like and what type of property you have. Not all things are equal. I'm in the Toronto area and I work in the Greater Toronto Area from Oshawa to Milton. I own a property management company and we do a lot of rentals.

So basically the smaller and cheaper the apartment, the quicker it moves. The people who would rent a one bedroom basement are more likely to be more transient, move more often and move more quickly. For this type of apartment, it's not unusual to find a tenant the week before they move in.

One bedroom  condos downtown, same deal, the people are very mobile, couples, young professionals, singles. They live to rent about a week into the month for the end of the month. Quite often, we'll rent these back to back, with no vacancy at all.

Two bedroom condos and townhouses tend to be a little higher priced, and attract people who don't move as often. Townhouses are very attractively priced as a rental and have most of the benefits of a detached house and so attract a very stable family tenant.

Three and 4 bedroom townhouses,more stable working families tend to stay quite a while, also very attractive to divorcing people of higher status that are transitioning.

Then there are some really sweet rental properties, really nice family homes, luxury price point, they take a while to rent, sometimes 2-3 months. People will start looking months ahead to rent these properties, obviously, presentation is an issue.

Wintertime is your enemy. People just aren't moving around holidays. There's not too much you can do about it and price concessions just hurt you in the long run.

This lovely 4 bedroom I've sent the picture of, it's super nice, but it's doubtful that someone qualified will just move right in. It will take a while to market the property and for people to make up their mind.

Bobberth

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Re: Vacancy assumptions
« Reply #6 on: December 20, 2016, 03:49:45 PM »
You would be safe to assume 10-11 months of occupancy. That would probably be conservative in most cases. Part of it will depend on your market. I just had 2 months vacancy as it took an abnormally long time to verify the applications with my screening agency. By the time they were approved they needed to give their current landlord 30 days notice so that cost me the second month. Vacancies are MUCH cheaper than a good tenant so while I wasn't pleased with that second month, I'm glad I have a tenant who passed my process instead of others who would have moved in with cash that day. Most of the time it is a month between tenants for me. But I also have mainly SFRs so most of my tenants stay longer than 1 year. Where  other landlords I know, who have mainly apartments, turnover is nearly every 12 months when their lease is up.

If the numbers don't work out, don't force it. Wait for a deal or look elsewhere. I waited for years to finally jump in on my first rental property after looking and nothing really making sense. Granted I started in 2008 and had the housing crash to help me out but there are still deals out there today.

marty998

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Re: Vacancy assumptions
« Reply #7 on: December 20, 2016, 05:22:57 PM »
Been an investor for about 2.5 years now. Only had one period of vacancy for about 3 weeks, and that was because I knocked back a couple of applicants on the basis of income (they were on benefits, no jobs).

Waited till I got a solid applicant who actually said he wanted to stay for many years. Way to give away your negotiating power brother!

Means I can put the rent up consistently each year in line with market and know that he won't walk away.

fishnfool

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Re: Vacancy assumptions
« Reply #8 on: December 20, 2016, 07:25:00 PM »
One of my units, no vacancies in 13.5 years. Unit #2, 3 months loss of rent in 13.5 years.

My positive vacancy record is largely due to having a great property manager.

sol

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Re: Vacancy assumptions
« Reply #9 on: December 20, 2016, 07:39:09 PM »
We've had one solid tenant for four years, no vacancies.  The other property has only changed tenants once, last December, and I actually had to extend the vacancy period for a few days in order to get some work done on the place.  We posted an ad the day after we learned they old tenant was moving out and had the new tenant lined up before the old ones were even gone.  We lost about a week's rent in between.

ChpBstrd

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Re: Vacancy assumptions
« Reply #10 on: December 20, 2016, 07:56:16 PM »
Thanks for the replies, everyone!

To summarize:
  • 10-11 months' rent might error on the conservative side.
    Having "a great PM" drastically reduces vacancy.
    More expensive properties have lower turnover than cheaper properties.

Would it also be true to say that a more expensive property (e.g. 3br SFH with garage) would take longer to find a tenant for, but have less vacancy in the long run than a cheap property (e.g. 2br cottage)? I wonder how far up the luxury scale being a landlord makes sense. At some point, people have enough money or income they just buy instead of renting for 3-5 years.

Spoiler: I'm living in a 3br 2700sf clown house, thinking about downsizing by half, but have a sweet mortgage rate. Wouldn't it work well to just rent the mansion? Hmmm...

sol

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Re: Vacancy assumptions
« Reply #11 on: December 20, 2016, 08:12:39 PM »
  • 10-11 months' rent might error on the conservative side.
11 months is standard protocol for evaluating rental properties.  Consider it part of your contingency plan.

Quote
Having "a great PM" drastically reduces vacancy.

It also reduces your profit margins, usually by at least one month per year of rent.  We manage both of our properties ourselves, with very little trouble.  When they call, you go look at the problem and either fix it yourself, or you call a plumber/exterminator/sprinkler guy or whoever is needed.  It's not that hard.

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Would it also be true to say that a more expensive property (e.g. 3br SFH with garage) would take longer to find a tenant for, but have less vacancy in the long run than a cheap property (e.g. 2br cottage)?

I think that totally depends on your market.  In some popular vacation destinations, property valuations are sky high but so are vacancy rates.

Quote
Wouldn't it work well to just rent the mansion? Hmmm...

There are a bunch of threads here about how to evaluate a potential rental property.  There are spreadsheets.  It's just an accounting exercise.  And there's a lot to learn about the tax implications that is not usually obvious to the first time RE investor.

The hard part is in comparing your expected cashflow and unknown amounts of appreciation vs the expected return of investing that lump sum in your chosen stock/bond asset allocation instead.  A good rental property should absolutely outpace the stock market in the short term.  In the long term, though, nothing beats stocks.


adamcollin

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Re: Vacancy assumptions
« Reply #12 on: December 22, 2016, 04:01:04 AM »
Vacancy rate normally depends on location, weather conditions and proximity to nearby amenities.

Enigma

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Re: Vacancy assumptions
« Reply #13 on: December 22, 2016, 11:51:25 AM »
Currently, I do not have any vacancies and multiple units that have had the same renters for years.  Everything is dependent on location even renting your 3 bedroom 2700 sq foot house.

NoNonsenseLandlord

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Re: Vacancy assumptions
« Reply #14 on: December 23, 2016, 12:43:33 PM »
I assume 5%.  With a SFH, you are either 100% full, or 100% empty.  When you have a vacancy, it is likely an expensive one due to less maintenance during the tenancy.

in 2016, with 25 units, I had 2 months vacant total.  It was planned and I did a remodel.  That is a 2/(25x12) = .0067% vacancy rate.

v8rx7guy

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Re: Vacancy assumptions
« Reply #15 on: December 23, 2016, 01:28:03 PM »
I assume 5%.  With a SFH, you are either 100% full, or 100% empty.  When you have a vacancy, it is likely an expensive one due to less maintenance during the tenancy.

in 2016, with 25 units, I had 2 months vacant total.  It was planned and I did a remodel.  That is a 2/(25x12) = .0067% vacancy rate.

It's 0.0067 or 0.67%, not 0.0067%

NoNonsenseLandlord

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Re: Vacancy assumptions
« Reply #16 on: December 24, 2016, 06:13:52 AM »
I assume 5%.  With a SFH, you are either 100% full, or 100% empty.  When you have a vacancy, it is likely an expensive one due to less maintenance during the tenancy.

in 2016, with 25 units, I had 2 months vacant total.  It was planned and I did a remodel.  That is a 2/(25x12) = .0067% vacancy rate.

It's 0.0067 or 0.67%, not 0.0067%

You are right.  .67%.  Damn metric system!

(I actually minored in Math, but it was a long time ago.  Lucky I did not have to do a quadratic equation...)

clarkfan1979

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Re: Vacancy assumptions
« Reply #17 on: December 26, 2016, 09:40:00 AM »
I have two single family home college rentals, one for 9 years and one for 2 years. I have only had one day of vacancy across the 2 rentals. This was because my cleaning crew doesn't work on Sundays, so I had to eat one day of vacancy.

Enigma

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Re: Vacancy assumptions
« Reply #18 on: December 28, 2016, 05:40:56 AM »
This is a landlord's market.  I had worse years with a few vacancies, major upgrades, and tenant delinquencies...  2016 proved to be a prosperous year.