A vacant investment property does not produce any income. Unless the property is vacant for a specific reason (such as renovations) there is an urgent need to secure a tenant and start to generate income as soon as possible. If you are in the situation when your property has become vacant, there are strategies available to help you find a suitable tenant as quickly as possible to minimise the loss of income.
If your property has been vacant for a long period of time, you may want to consider the advertised price for rent and whether this could be reduced on the basis that a shorter lease period is offered to a suitable applicant. When your property is not producing any income for you, this will help you secure a suitable tenant. You can then review the rent at the end of their fixed-term tenancy, rather than prolong the vacancy in the hope more rent will be achieved.
Here are a few scenarios to consider:
It is the month of August. John and Wendy have an investment property that has been vacant for four weeks. Their property manager has it advertised at $450 a week and has been recommending to the client that it be reduced to $430 a week in order to be competitive in the current market. John and Wendy aren’t budging and ask their property manager to keep trying for $450 a week. The property remains vacant for another two weeks until John and Wendy finally agree to reduce the rent to $430 a week. The property is leased the following week bringing the total vacancy to seven weeks. The new lease period is for six months up to February next year. The total loss of rent in this scenario is $3,010 (7 weeks x $430 rent p/w).
Roger and Simone have a similar investment property in the same marketplace that is about to become vacant next week. Their property manager suggests that they do not have much time to find a tenant before it is vacant, therefore they should price it competitively at $430 a week. The property manager also suggests that a six-month lease period be offered so the lease will end in a busy period, allowing the rent to be reviewed and an optimal rent achieved down the track as opposed to trying for the higher rent now and risk the property being vacant. Roger and Simone agree and the property is listed at $430 a week and a suitable tenant is found the next weekend before the property becomes vacant. The total loss of rent in this scenario is only $184 (3 days).
If John and Wendy had taken the advice of their property manager to reduce the advertised price of their vacant property, they would have been $3010 better off. If they did finally achieve the higher rent of $450, an additional $20 above what their property manager had advised, it would have taken them 150.5 weeks to recover the money they lost by holding out for more rent.
Roger and Simone, on the other hand, didn’t take that risk and secured a new tenant before the property became vacant, locking in their income until a more appropriate time to review the rent amount.
A property rented slightly below market value is better than a property with no rent. It takes a long time to recover the loss from a vacant property so consider adjusting the price and lease period to attract more prospective tenants. It is also a good idea to adjust the lease period to align the next potential vacant period with busy market conditions.