If you have severe vacancy loss, it could be the death knell of your rental business. You need to steer the ship, and quickly–but how? In this article, we’ll explain what vacancy loss is and why it matters, how to calculate it, its common causes and solutions, and even answer frequently asked questions. Keep reading to learn more.
Table of Contents
- What is Vacancy Loss?
- Why Vacancies Matter in Real Estate
- How to Calculate Vacancy Loss
- Common Causes (and Solutions)
- FAQs
What Is Vacancy Loss?
Vacancy loss is the money a landlord loses when rental units remain unoccupied. While it’s often seen in a negative light, experienced property managers in Baltimore view it as more than just lost income—it also represents potential earnings you could gain once the units are occupied.
Why Vacancies Matter in Real Estate
When your rental(s) sit empty, it’s not just lost rent—it affects your entire business. It can make your property less valuable, increase your expenses, and make it harder to attract tenants. That’s why it’s important to keep an eye on vacancy loss and take steps to minimize it.
Lost Income
Even if no one is living in the unit, you still have to pay for things like maintenance, property taxes, and utilities. Worst of all, you’re getting no rent in return to subsidize these costs–it’s coming out of your own pocket. Needless to say, every month a unit stays vacant, you’re losing money. In addition, your property may become less attractive to potential tenants if it sits empty for too long. This means you’ll need to invest extra effort and resources into marketing, upkeep, and even possibly improvements to ensure it stays appealing.
Lower Property Value
If a rental is empty for too long, buyers and lenders may feel it’s hard to rent out. It can be exponentially tougher to sell or refinance your property when it’s in a downward spiral. Additionally, extended vacancies can lead to lower appraised values. In turn, this negatively impacts your property’s marketability. Also, your situation might discourage potential investors, as they could perceive the property as a risky investment. All in all, the longer your losing streak goes on, the harder it can be to get out of it.
Impacted Reputation
A property that constantly has vacancies can develop a bad reputation. If potential tenants notice that units stay empty for long periods, they may assume something is wrong—whether it’s high rent, poor management, or maintenance issues. That makes it even harder to attract renters. Furthermore, its negative reputation can spread quickly through word-of-mouth and online reviews, exacerbating the issue even more. Because of all this, renters might choose to look elsewhere out of fear they will encounter similar problems.
How To Calculate Vacancy Loss
It’s quite easy to calculate vacancy loss. Here’s how you can do it, with examples to guide you.
Formula
Vacancy Loss = Empty Units × Rent Per Month × Months Vacant
Example:
Let’s say you own apartments, and 5 of them are empty. Each would have earned $1,000 per month, but they’ve been empty for 2 months.
Vacancy Loss= 5 × $1,000 × 2 = $10,000
So, because those five apartments were empty for 2 months, you lost $10,000 in rental income.
Common Causes (and Solutions)
Now that we know why taking care of vacancy loss is crucial in real estate, what about why it happens in the first place? Only when you know the reasons your property got into this state can you start rectifying them. Here are some of the common ones:
Competition
This is another core factor that can cause vacancy loss. If your property is situated somewhere with an oversupply of rentals, this could be a major issue. In that case, you would need to make some adjustments to help your property stand out. For example, you could offer competitive pricing, attractive lease terms, or unique features. Also, like we mentioned earlier, undergoing effective marketing strategies can play a significant role in attracting potential tenants. Hosting open houses and showcasing the property’s strengths can convert people from being indifferent to invested.
Location
Location is the name of the game when it comes to real estate. You could have the most attractive property in the world, but if it’s in the wrong location, it will take a lot more work for it to make waves. After all, people want a place with easy access to their workplaces, schools, and essential stores. As such, if your property’s location poses challenges, you’ll need a targeted, meticulous marketing strategy to attract renters.
Poor Property Condition
When a rental property looks neglected or rundown, it can be a real turn-off for potential tenants. If people’s first impressions are poor, they might only live there as a last resort. Even worse, if they experience continuous disruptions during their stay, that incentivizes them to find something better. These factors combined can bring on higher turnover and longer vacancy periods. To avoid this, landlords should focus on regular maintenance, repairs, and needed updates. Fixing any structural problems, keeping the place clean, updating old fixtures, and sprucing up the exterior with some landscaping can all make a big difference. By staying on top of these issues and preventing small problems from getting out of hand, you can attract and keep tenants more easily.
Ineffective Property Management
Speaking of staying on top of maintenance, landlords who lack the time to properly manage a property can raise vacancy rates. If you have to delay repairs, are unable to do regular upkeep, and are too swamped to communicate consistently or promptly, tenants can become dissatisfied and move out in droves. To address these challenges, you might need to hire a property management company. These professionals can handle your rental’s day-to-day operations, ensure timely maintenance, and maintain open lines of communication with tenants. Ultimately, this can improve tenant satisfaction and help reduce vacancy rates.
FAQs
You’ve got questions, and we’ve got answers! Here are some of the most common questions about vacancy loss and how to manage it effectively.
How can I reduce vacancy loss in my rental property?
To reduce vacancy rates, landlords need to ensure their tenants are satisfied. They must maintain their property and communicate consistently and promptly with tenants about any issues going on. Next, investing in popular property upgrades, like installing modern appliances, can make your property stand out from the crowd. Lastly, marketing matters too: if they set competitive pricing, do targeted, well-researched outreach, and make appealing lease terms, that can do wonders to attract tenants.
What is a good vacancy rate for rental properties?
It depends by location and other factors, but usually, a range between 5-10% is considered good. In other words, if you have 100 units, only 5-10 should be empty at a time.
How can seasonal fluctuations affect vacancy loss?
If your property is near a school, you may have fewer renters during breaks. If it’s in a vacation area, summer or holiday seasons might be busy, but off-season could be slow. So, you should keep seasonal demand in mind as you account for vacancies.
Should I lower my rent to reduce vacancy loss?
Maybe, but don’t go too low. Sometimes, one-time special offers, like free parking for a month, can help attract renters without hurting your profits too much. It’s always crucial to balance your marketability with your bottom line.
Don’t Let Vacancy Loss Hurt Your Profits!
As discouraging as vacancy loss may be, it also presents an opportunity to pivot. Now, you can find the winning strategy that will give you the results you’ve always wanted. You can transform your hardships into a stepping stone to success.
However, to ensure this chance doesn’t slip through your fingers, you need to go about that strategizing the right way. If you make a misstep in this pivotal moment, it can be the domino that makes it all go down. Professional property management can serve as your safety net in this regard. They’re specially, extensively trained to understand the nuances of your market and what makes tenants tick. They can wield that knowledge to develop aggressive marketing campaigns and tailor them to various social media channels. Furthermore, they can handle maintenance, repairs, and tenant communications to keep tenants satisfied and staying.
At Bay Property Management Group, we offer full-service services to accomplish just that. Our team manages over 6,000 units throughout Pennsylvania, Maryland, Northern Virginia, Washington D.C, and beyond. Contact us today to take control of your rental business and boost your ROI!
