Rental income can ‘leak’ out of a mismanaged property through various avenues, including setting rents too low, slow turnovers, and excessive vacancies. In this post, we will outline some of the primary areas that rental revenue is lost, and discuss ways to address them.
Setting the Right Rental Rate: If your property management company sets your rent too low, your unit will likely lease up quickly, but you can easily lose hundreds of dollars per month in lost rental potential. On the flip-side, if your rental manager sets the rent too high, your unit may sit empty for a long-period of time, potentially losing you hundreds of dollars each day (depending upon your location). For tips on optimizing your market rent, see our article on setting rental rates.
Slow Turnovers: Another often-overlooked area where significant rental revenue is lost is during the turnover of the unit. Turnover is a science that must be mastered in order for you to squeeze the most profit out of your rental property. Frequently units sit vacant for weeks at a time as various vendors are scheduled to turnover the property (e.g., cleaning, carpets, maintenance, etc.). The bad news is that in the case of rental property: all of this time IS costing you money. A good property management company will complete all standard turnovers in 3-days or less. This is done by immediately scheduling the cleaning, maintenance, and key change for immediately after the tenant moves out (the evening of the move-out once keys are turned over is a GREAT time to start!). In order to facilitate this, you have to start early with a preliminary move-out inspection 2-weeks before the tenants vacate the unit. This will enable you to schedule all of the necessary vendors that will be needed at the property when the tenants move-out, enabling you to ensure that your vendors are scheduled for that time frame and are available.
Excessive Vacancy: Finally, we need to consider the cost of excessive vacancy caused by poor marketing of the unit, excessively high rental rates (see above), or other inefficiencies in the vacancy filling process. The average unit vacancy is between 20 to 25 days! That is 75% of 1-months rent on the higher side! This is unacceptable no matter where your unit is located. This adds up quickly and is a huge chunk of change! Frequently, excess vacancies are due to the units being marketed at rents that are above the market (see above), not being move-in ready (scheduling issues for turnover preparation), and poor marketing (not getting your unit marketed on the right channels, not representing your unit well). A high-quality property management company will typically lease-up your unit within 7-days of it becoming vacant. This includes cleaning, maintenance, marketing, showings, application processing (criminal, credit, employment, and rental history checks), lease signing, payment of deposits/first months rent, and move-in inspections with the new tenant! Whew! That is a lot of work to be crammed into a short time period. But that is how the best property management companies will get it done. Contrasting the difference between a 7-day turnover versus a 25-day turnover on your rental revenue can easily show you how you can be increasing your revenue by hundreds per month!
These three factors alone often costs hundreds if not thousands of dollars per year per each unit, and show how paying attention to the details can really increase the profitability of your rental property. We hope that you leverage these tips to your advantage with all of your properties!