Vacancies can be good for business if you want to make money in real estate.
I know what you’re thinking right now — Steve Martel’s gone crazy, right?
We all know vacancies are bad. No one ever wants to take rental apartments of service, right – not if you actually want to make money in real estate!
Trust me — this is sage advice that only professional property management would know — and those who know how to make it in real estate. Only unplanned vacancies are bad. Planned vacancies are a critical tool in growing a property’s value. Long-term tenants can get in the way of that.
Sure, there is some benefit to a long-term tenants. Longer leases can keep rent cash flow healthy while keeping turnaround costs low. But there’s a trade-off. Rents become stagnant under the terms of the rental lease. Without any turnaround, no one’s taking a close look at the condition of the property. Repairs and updates easily are neglected as the property languishes, killing appreciation. How are you going to make money in real estate?
Your Rental Apartments Need Your TLC If You Want to Make Money in Real Estate
No one is saying that you should switch to short lease rentals. The trouble with the “long-term tenants” strategy is that once these renters settle into the property, the tendency is to think your rental apartments are on auto-pilot. Meanwhile, the property starts to decline. Just because a tenant was well-behaved the first year or two doesn’t guarantee that their circumstances will never change. For all you know, they no longer qualify to rent another place. That’s not the way to make money in real estate.
For many rental apartments, a periodic face lift is all that is needed to ramp up the rent and keep the resale value climbing, which will increase how much money you can make for your real estate investment.
Working on the property while a long-term tenant still live there is like having a bully try to steal your lunch money every day. You have to give the tenant notice before workers converge, and that means listening to all the reasons why the time doesn’t work for the tenant’s schedule — because to the tenant it doesn’t matter what the contractor’s schedule is like.
If the project is messy, you may end up paying for temporary relocation.
Long-term tenants can sense when a change is coming — the fateful time when the rent may go up. They are going to lose that sweet deal they negotiated when they said they wanted a long-term lease.
NEWS FLASH! Tenants negotiate long-term leases to keep the rent down!
You don’t need tenants causing mischief and delaying construction projects on your rental apartments. And you certainly don’t want them adding their design “expertise” to the project. Do you really want to have to ask for the tenant’s opinion on how the work should be done?
Planned vacancies avoid all that.
This strategy is not just for keeping up maintenance and repairs in your rental apartments. You may find that the standard lease agreement is on the wrong cycle, like if you rental leases end in January, but your likely tenants are synchronized to the academic calendar. If you want to make money real estate investing, then you have to follow the tenants. If you are out of sync with your market, that means you are missing out on the bulk of qualified applicants, and risking unplanned vacancies — which are bad.
Yes, You Can Make Money in Real Estate!
If you still think I’m crazy, just do the math. If your lease provides a standard rent increase, often around 5%, but the market for your spruced up unit would allow you to reset the rent 20% higher going forward, it doesn’t take long for a short-term pit stop to pay off.
Obviously, high turnover would be a costly problem. But, with long-term planning, you can net both short-term cash flow, and longer term appreciation of your real estate investment. And, that, my friends, is how you make more money in real estate!