As a real estate investor and landlord, you understand that having a vacancy costs you money. It directly impacts your bottom line since, while your unit is empty, you have to make the mortgage payments, pay taxes, utilities, and insurance; without the benefit of having any rental income for that unit. As landlords, we accept that calculated risk going in and we typically work in a 3% to 5% vacancy rate in our projections.
The unit may be vacant when you first acquire it, when a lease expires, when someone simply moves after giving appropriate notice or when something worse happens like an eviction or a tenant breaking a lease.
There are things you can do before and during the rental to help alleviate some of that potential lost income. Luckily, there is no magic to it. It’s pretty much a logical business approach to building good tenant relationships.
Here are a few tips we’ve learned along the way:
Picking the right market:
The CMHC website https://www03.cmhc-schl.gc.ca/ is an excellent source for long-term historical data on vacancy rates as well as average rent rates. You even differentiate between the number of bedrooms.
If you are just purchasing a rental property, paying attention to the vacancy rate for the city is an important first step towards keeping your unit rented. The higher the vacancy rate, the longer it will likely stay vacant when that happens.
Picking the right area within that market:
Not all streets, or subdivisions are created equal. It is extremely important to know the area you are considering purchasing in. If you are unfamiliar with a city, ensure you have a realtor that is familiar. Pay attention to the houses on the street. Are they clean and in a good state of repair? Where is the industrial section in relation to the property? Is public transportation available? All these will affect both the quality and longevity of your prospective tenants.
Pricing for the market:
Once again you can use the CMHC information as a very rough guide to help understand what you could be charging. The best way however is to see what the rental market looks like on one of the many online sources like Craigslist or Kijiji. See what other landlords are asking. Look at how long the listings have been up and the area within the city that the units are located in relation to yours. If there are images, look at the finishes in comparison to your unit and make adjustments.
Some people advocate for putting a “fake” listing up there to see what it attracts. Personally I find that a little underhanded as you are creating hope and wasting other people’s (prospective tenant’s) time.
Renovating with “above average” finishes for the market and area:
If you want to attract the right tenants that will “want” to stay there and be proud of their unit, you will need to ensure the finishes are above average for the area. High-end finishes aren’t necessary in lower rental areas but, you should ensure that they are modern and high enough quality to “beat the neighbours”. If you are looking to retain your tenants beyond the first year lease, remember the saying “the grass is always greener on the other side”. Don’t give them an excuse to look elsewhere. Offer them a dwelling that they want to stay in.
Choosing your tenants strategically:
Given the points above, it goes without saying that if you are a slumlord and only care about marginal cash flow with marginal units, you will likely experience high maintenance, high turnover tenants. That’s just how it works. If, however, you care about creating good living spaces and attracting the kind of people that will want to live there, this section is for you.
Once you have a nice unit (relative to the area), with the right price, it’s time to recruit the right tenants.
These are people that:
- Can afford the rent easily
- Have a good credit bureau
- Have references (that you check)
When checking references, ask about responsiveness and how they handled maintenance issues; you want to know about them.
Appreciating your tenants:
Your tenants are your clients. They are also your bread and butter. Treat them with the respect you would want to be treated with. Communicate with them. Get to know them. Get out of their way but be there when they need you. Say thanks with a token gift on occasion.
Getting a good property manager:
If you aren’t going to manage the property and maintenance yourself – get a reputable property manager. This doesn’t necessarily mean a large firm. It can be a one-person show. Here are some of the things to look for in a property manager:
- They are licensed and insured
- They have experience (and references) in minor repairs
- They are people that understand that tenants are people too
- They are local and available for emergencies
One of the easiest ways to reduce your vacancy rate is to “keep it rented”. It is a lot tougher to replace a tenant than it is to keep one. Stay communicative and stay on top or the little things and you will be ahead of many of the landlords out there. The side benefit is that your existing tenants will have friends and associates that they will refer to you for your next property too!
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