Our family is selling our 22-unit apartment building in La Habra. We’re well under way in escrow now, and the contingencies have been waived by the buyers. This is good news, except there’s still no guarantee the sale will close. The buyer can still back out and forfeit their deposit. It’s my job to make sure the building keeps looking good all through escrow, so the sale closes. Our biggest problem right now is vacancies. We had two tenants move out in November, and we haven’t gotten those apartments filled yet. For the next month, priority number one is filling vacancies during the most challenging time of the year: the holiday season.
No One Moves During the Winter Season
No one moves in December. (See here, here, and here, if you don’t believe me.) Kids are in school, families are being shuttled around to various holiday gatherings, and there are lists to be made, meals to be cooked, and gifts to be purchased. Filling vacancies in December is a very difficult task.
So imagine how nervous I am, given that we have two vacancies now, and one more scheduled to open up January 1. Our two current vacancies are 3-bedroom units. Those apartments are sometimes easier to fill, because very few neighboring buildings have many 3-bedroom apartments and a lot of families need the extra space. But families are even less likely to move during December than single people or couples without kids, and given the massive rent increases in Southern California over the past year, it’s harder and harder for families to be able to afford 3-bedroom apartments at current market rates.
The other risky part about the 3-bedrooms being vacant is that those are the highest rents in the whole building. Having two vacancies out of 22 units, both for top dollar rentals, makes the numbers look bad in a hurry.
What Happens if the Buyer Backs Out of the Deal?
If the buyer backs out at this point, they will forfeit their deposit, which is a substantial sum of money in a big commercial sale like this. However, when you’re spending somewhere around $5 million for a building, and it appears that you’re buying a bad investment, the loss of a $125,000 deposit is better than closing on the deal and losing all of your equity in foreclosure.
For us, it would be a huge bummer to have the buyer back out. If the building went back on the market, there is a good chance we would get about the same amount for the building with a new buyer, but we’d basically be starting over again. It’s really frustrating to put all the time and effort into the sale, and to then have to start over with a new walk-throughs with potential buyers (and having to give tenants notice that you will be walking through their unit AGAIN), a new building inspection, new appraisal, updating the financial documents to show to the buyer, etc. Plus, I’ve already narrowed down my choices for buying a replacement investment property, so I’m mentally geared up to get this one to close and to move on to the next one.
Managing the Manager
Our building is managed by a management company, but that doesn’t mean that we owners can just sit back and watch the money roll in. I mean, technically you can do that, but that’s a really bad idea. If you’re asleep at the switch, your manager could be doing really horrible things, and you won’t have any idea that you should fire your manager and hire a new one.
In our case, our regional manager is excellent, but she manages a lot of other properties as well, and our resident manager is brand spanking new. The resident manager is doing a great job for a newbie, but there are still some things that she just hasn’t learned yet.
Our first 3-bedroom went vacant in early November, and took a while to turn over because the tenants had been with us for more than 10 years. Their apartment needed some serious cleaning and rehabbing after they moved out. It wasn’t ready for rent until about mid-November. We had some tenants lined up to rent it starting December 1, and they even paid a deposit equivalent to about 2 weeks’ rent. Just before the scheduled move-in date, they let us know that they wouldn’t be taking the apartment after all. We were able to keep the deposit, which covered the rent for the time we held the unit, but we still have a vacancy on the rent roll.
The second 3-bedroom vacancy came up at the very end of November and was ready by December 1. We haven’t had much traffic for either unit, and then we got a 30-day notice from another tenant in a 2-bedroom that they will be moving out by January 1.
Filling Vacancies—Check Your Advertising!
I know it’s the worst time of the year to be filling vacancies, but I’m really nervous about the sale closing. I asked our resident manager what sort of traffic we’ve been getting, and asked her for the basic stats on the apartments we’re trying to fill. My thought was that I would look online and create free ads wherever I could to try to increase traffic. Much to my surprise, I couldn’t find our vacant apartments listed ANYWHERE online. Aaaack! No wonder we’re not getting applications!
I immediately emailed our regional manager and let her know. She explained that their IT department was supposed to stay on top of that, but she apologized and took responsibility, and worked with the resident manager to get the units posted on Postlets immediately. Now both 3-bedroom apartments are listed, and I’ve nudged the manager to make sure the 2-bedroom gets listed soon, too. Hopefully those units will fill up quickly, and I can breathe a little easier for the next month.
If you’re a landlord, what do you do to get your rentals filled in the winter months? If you’re a tenant, what would it take for a landlord to entice you to move during the holiday season?