Rental properties can be extremely profitable. They enable you to earn hundreds of dollars a month while you also benefit from the long-term appreciation of the properties’ value.
But that’s not always the case. If the space is vacant, you’re losing money instead of making it. You’re responsible for paying the expenses, such as maintenance and upkeep, without generating any income to compensate you for it.
A month or two is usually no big deal, and in many cases, to be expected. How long is too long for a property to remain vacant?
The Problem With Vacancies
Vacancies are a problem mostly due to the lack of income. When there’s no tenant in your property, you don’t receive any rental fees, and there’s no other way to make up the missing revenue.
You’re stuck paying for your mortgage, taxes, insurance, repairs, and other expenses out of pocket without any supplementary source of revenue. This will steadily eat into your profits, and potentially undermine your profitability for the entire year (and possibly beyond).
You might face other problems if your property is vacant for such a long time that it becomes viewed as a vacant property. Potential applicants may start to believe there’s something inherently wrong with the property, which discourages anyone from applying.
Expecting Vacancies
At some level, you should expect to have some vacancies. When one tenant moves out, which will happen, you’re not guaranteed an immediate replacement.
If you screen your tenants, as you should, you may find that few applicants meet your minimum criteria for approval. In such cases, a prolonged vacancy can actually be a good thing, since it indicates you’re not settling for prospects that have an unpleasantly low credit score or who lack a steady job.
Of course, there has to be a threshold where the vacancy becomes too extended or unsustainable, at which point you should become concerned.
Main Reasons for Extended Vacancies
These are some of the common reasons vacancies become prolonged.
- Lack of demand/applications. Most often, properties remain vacant when there’s a lack of demand or no applications coming in from acceptable tenants. If other properties in the area are similar to yours but are renting for less money, or this simply isn’t a popular area, you may continue to struggle to find worthwhile applicants.
- Major repairs and improvements. You might also intentionally keep the property vacant if you have major repairs or improvements to make. It’s easier to conduct renovations and catch up on major maintenance when no one occupies the premises.
- Screening delays. A space might also be vacant for an extended period of time if, during your tenant screening process, you find that most of the applicants present significant financial risk.
Variables to Consider
Obviously, there’s no single answer to the central question of this article. In some cases, a two-month vacancy is burdensome. At other times, a five-month vacancy may be utterly reasonable. The difference depends on several variables:
- Market conditions. What are the market conditions in your area? If it’s a hot region for renters and other properties are being occupied quickly, you should be concerned if you continue to experience delays in filling your spaces. On the other hand, if conditions are generally slow and the area isn’t as fashionable as it once was, a vacancy may represent little more than the cost of doing business at this time.
- Personal risk tolerance. You should also weigh your personal risk tolerance. If you have a portfolio that contains several rental properties and you’re more focused on long-term gains than short-term cash flow, you might not feel as concerned about a vacancy as someone who relies on this single rental property to make ends meet.
- Ongoing expenses. What are your ongoing expenses? If you don’t owe any money on this item and your monthly expenses are reasonable, a vacancy may not be a big deal. But if you’re paying thousands of dollars a month for your mortgage, utilities, and other expenses, you’ll probably be in a greater hurry to fill the property as soon as possible.
- Projected rental income. On the other side of this equation, think about what you’re asking for rent. If you stand to make a significant profit from a worthwhile renter, you can afford to shoulder a few months of vacant quarters without much concern. On the other hand, if your profit margins are slim, each month of vacancy is going to hit harder.
- Reasons for the vacancy. Some reasons for vacancies are more tolerable than others. If you have allowed this property to go vacant intentionally so you can execute some major renovations, the vacancy will work in your favor. But demand problems could be a signal that you’ve invested in the wrong neighborhood.
What to Do If Your Property Has Been Vacant Too Long
If you fear your property has gone vacant for too long and you’re eager to fill it, several strategies might help you close the gap.
- Hire a property management company. One of your best options is to hire a property management company. Such firms can help you with everything related to your rental property, from finding and screening tenants, and conducting repairs and maintenance, to collecting rent and handling evictions. With a capable property management company on your side, you should be able to fill your vacancy quickly.
- Lower the rental price. If you suspect demand is the problem, think about lowering the rental fee. You’ll be sacrificing some or even all of your monthly profitability, but if you’re able to fill the property a month or two faster, you might be able to make up the difference eventually.
- Invest in marketing and advertising. Similarly, if you have the budget, you could invest more heavily in marketing and advertising. Showcasing your property to a wider range of people and in bigger and more prominent channels could be what your rental needs.
- Consider an alternative approach. You might also consider re-strategizing from the ground up. Is there a different demographic you could target or a new angle you can employ to market this property more effectively?
Are you having trouble getting a tenant into your Houston Texas rental property? Are you interested in making your rental property management in general less of a hassle? Green Residential can help. Contact us for a free consultation today!
Michael is Green Residential’s Vice President. He helps to keep the team organized and running smoothly. Prior to joining Green Residential, he spent 12 years working at Cadence Bank in the mortgage loan servicing department, where he specialized in loan audits, modifications, and bankruptcy-related issues for the mortgage portfolio.
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