The High Cost of Vacancy for Landlords

True story:

I was helping a friend rent their property many years ago, and we sat on the market for 4 weeks. At the end of the 4 weeks, the friends said, "Ok, now that we have had it vacant for a month, we will need to raise the price to make that money back."

Quite simply, that isn't how markets work.

As landlords, we need to anticipate the high cost of vacancy when we first put a property on the market.

Here is a story from a recent lease we assisted our clients with. They wanted to cover their entire mortgage and property taxes with the rent, so they wanted to start at $2,500/month in rent. We explained to them that the correct price to get the home rented was $1,900/month. But they insisted it would be too expensive to cover the $600/month cash flow ($7,200/year), so they started higher.

The property sat on the market in total for 3 months before the price was finally lowered to the $1,900/month rent and received applications.

Let's walk through the math of starting higher or locking in the loss of starting at the lower number.

By starting at $2,500, the landlords locked in 3 months of vacancy and cost themselves 3 × $1,900 ($5,700). If they had just lowered the rent much faster to meet the market interest, they would have saved themselves at least two months of vacancy.

Instead, they are "losing" the $7,200 in cash flow PLUS locking in the $5,700 loss in vacancy, for a total cash flow loss of $13,900.

Our recommendations to landlords:

• Lower rents quickly 5-10% every time you change the price

• Be aware of the cadence of tenants; they tend to look at the beginning of the month for the following month

• Lower the rental rate until you start getting showing interest

• You can never lower too low; the market will raise the price with increased applicants if you are too low

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We are delighted to be your guides to Austin and Austin real estate!

Cheers,

Jen & the team

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