Wouldn’t it be sweet if you never had any vacancy in any of your units? Your tenants give 60 days notice, and then you have the next tenant ready to move in right away? And you don’t have to do any repairs or maintenance or freshening up?
In reality, you’re going to have vacant units, the best practice is to plan for them with your financial modeling. If the multi-family building you’re analyzing is in a desirable area, is in good condition, and the rents are in line with what other units are renting for, you might get away with using 5% as your vacancy factor.
If the building isn’t great, or if the neighborhood isn’t great, it probably makes more sense to use a number closer to 10% for your vacancy.
Then, as you’re working your way through your model, just knock off 5% (or 10%) from the gross rent each month. That way, when you have a tenant who moves out, you’ve already factored some lost rent into the financial analysis.
Every day that your apartment isn’t rented costs you money. We know that worked a vacancy factor into your analysis, (you did...right? If you didn’t then go back and read Vacancy.) But you still want to have as little vacancy as possible.
Keeping a good tenant is good business.
Staying on top of maintenance, and doing repairs and small upgrades professionally and promptly are two huge keys for reducing vacancy. If you’re not good at that, then here’s another reason it might make sense to get a professional property manager.
Keep your rents in line with other similar apartments. If you charge too much, you’ll price yourself out of a tenant. But if you charge too little, you might be sending the message to your tenant that you undervalue the building.
Opening lines of communication is important too. Make sure that your tenants know that if they are planning on moving out, that you’re not going to be mad, and that you’re not going to be a jerk of a landlord.
You want tenants to give as much notice as possible so that you can plan for repairs, and start advertising the soon to be vacant unit.
If your tenants and your lease allow you to go into the unit and do small repairs while they’re still living there, that’s helpful too. They may appreciate that the bathroom gets repainted even if they’ll only get to enjoy it for a couple weeks.
Here’s another tip: If you own more than one rental, ask why your tenants are moving out. Maybe they need another bedroom. And maybe you have another unit with one more bedroom. Maybe they want to get a cat. Well, maybe you have another building that is pet friendly. It never hurts to ask. Should you allow pets in your apartments?
Remember that one month vacancy is hundreds or thousands of dollars of lost revenue. And even more if your property manager charges a placement fee (which is very common in this market).
Anything you can do to reduce vacancy makes your multi-family investment more profitable, and that’s a big reason that you’re in the business.