Hello, property investors! I have quite a few things to catch you up on, but for now I figured I’d catch you up on the most current news. It’s tenant turnover time! Hooray!
Okay, that’s partly sarcastic but partly serious. Tenant turnover can be a pain in the butt. You have to find a new tenant, coordinate the move-out of the old tenant, fix up the apartment in between, and hope that you don’t have too long a vacancy or a turnover disaster that screws things up. It can be a tricky dance of timing and trying not to lose too much money. But the good news about tenant turnover is that you get a fresh chance to get as much rent as possible!
First, a Little Background
So, quick recap: I bought this fourplex in La Habra in about February of 2016. I gave all of the existing tenants notice to vacate, and did a fairly major overhaul of the building. After the renovations were complete, I advertised all four apartments for rent at once, screened all of the future tenants using Properly, and ended up with four sets of great tenants, all of whom moved in around July 1, 2016. Woo hoo!
So far, things are going pretty darn smoothly. A couple of maintenance issues have cropped up over the past two years, but nothing major. I’ll try to cover those in a future post.
The Tenant Gives Notice; Advertising to Find a New Renter
Of that four-pack of great tenants, my first set gave notice that they intended to move at the end of April 2018. I’ll be honest with you: I was a little nervous. It had been almost two years since I had to list an apartment for rent. Things move quickly in the internet world, and I was concerned that my old method for finding and screening people might not exist anymore.
Fortunately, my fears were unfounded. I logged on to Zillow Rental Manager (it still exists—phew!), and my old listings were still saved in there. I pulled up the listing for the available unit, made a couple of revisions to the description of the property, verified that all of the amenities were listed correctly, and hit publish. BOOM. The listing populated to Zillow, Trulia, and Hotpads, all in one fell swoop. Within an hour, the email inquiries started rolling in.
Next, I logged into my Properly account. The last time I used Properly, I created listings for each of my rental units there, too. Why do it in two places? Because Properly will generate a pretty HTML-coded posting that you can copy and paste into Craigslist. (A lot of potential renters look for places on Craigslist, by the way, so even if you think it’s cheesy, I wouldn’t advocate skipping it.) I updated the Properly listing, copied the HTML code, and posted it on Craigslist. That sent more applications coming in.
How Much Rent Should You Charge?
But wait—I got ahead of myself for a second. First, the fun part! I had to figure out how much to charge for rent. I searched Hotpads to see what comparable apartments were renting for. Now, I’ll tell ya, it would be really nice if everyone priced their apartments consistently. Some looked at least as nice than my rental, but they were priced WAY too cheap. Some others were comparable, but priced crazy-high.
You can’t stress about this too much. As long as you’re somewhere in the middle, you’re probably going to be fine. Whatever you do, don’t feel compelled to beat the cheapest apartment out there. First of all, you haven’t seen it in person, so you don’t know what the place is really like. Ask anyone who’s done online dating (*cough*) and they’ll tell you that pictures can be a lot different from reality.
The other thing to keep in mind is that one too-cheap apartment is only one apartment. There are always multiple applicants for each apartment. Only one person is going to get that cheap one, and the rest of the market will be stuck looking for things that are more reasonably priced. Those are the folks you’re aiming for.
Did You Pick the Right Rent Number?
How do you know you’ve picked the right rent amount? There’s no concrete answer. If you’ve picked too high a number, you’ll know because your rental will sit vacant, or you’ll only get terrible candidates. Don’t ignore that second sign, by the way. A vacancy is easy to diagnose. But if you’re getting a decent number of applicants and they’re all underqualified, your rent is too high. Only the desperate renters (the unqualified ones who aren’t getting accepted elsewhere) will try to get an overpriced apartment because they have no other choices. It’s like sub-prime borrowers paying higher interest rates for a loan. That’s all they can get, so they’ll sign up to pay more if they have to. But just like the sub-prime mortgages, those unqualified applicants are not a good risk. You might get more rent for a while, but you’ll probably regret it.
If you picked a too-low rent number, you’ll be flooded with quality applicants and have minimal vacancy. That’s good news, but you might be leaving a lot on the table in rent. And here’s another thing to think about: if you undershoot the rent by $100, you not only lose the $1,200 in rent for the first year, but every time you do an annual increase in the future, you’ll be basing it off of the too-low starting rent. Ouch. You can raise the rents later to make up for it (provided you’re following your jurisdiction’s laws), but make the increase too big and you’re likely to have an unhappy tenant and/or a new vacancy.
Your ideal rent number will be just high enough that you end up with just one or two qualified applicants who are ready to move in as soon as the apartment is available.
So What Happened? How Did It Go?
The rent that the last tenant was paying for the apartment was $1,675. After looking at comparable rentals, I figured I would list it for $1,825. I listed the apartment for rent on April 16th. (Note: I really should have done this sooner. The best candidates tend to look 3–4 weeks in advance.)
Thirty-seven potential applicants responded to the ad between April 16th and April 21st. That was the date I chose for the first showing. Just like last time, I sent each potential applicant my stock email response with my acceptance criteria and the procedure for submitting applications. This tends to weed out the applicants who don’t meet my qualifications, so I expected some people to drop off at this stage. (Full credit goes to the No Nonsense Landlord for that idea. It’s saved me a LOT of time over the past couple of years.)
Of those 37 responders, nine said they would meet me for the showing. Six out of those nine actually showed. Of those six who showed, I got 1.5 applications. Ultimately, I ended up with one very qualified candidate. Nailed it! The other candidate would have been fine as well, but he didn’t complete his application quickly enough.
If none of those applicants worked out, I could have done another showing the following weekend. I had a total of 53 applications from April 16th and April 23rd, when the new tenant signed the lease. I pulled the ad down once he signed the lease. I’m sure if I didn’t get an applicant the first weekend, I would have gotten one the second weekend. But I was happy to have a qualified candidate and a concrete move-in date planned.
Timing the Tenant Turnover
The former tenants moved out April 30th. The new tenants moved in May 5. I scheduled the painters, cleaners, and the handyman for May 1–4. It was a tight schedule, but it worked great. I met the new tenant at the property on the morning of May 5th to give him the keys and collect the first month’s rent and security deposit.
I ended up with only four days of vacancy, which is totally reasonable. It was even a little bit tight in terms of getting the painting, cleaning, and a couple of minor repairs finished.
I’m really happy to be getting another $150 per month for the apartment. That’s an extra $1,800 per year, and a 9% increase in rent! I might have been able to push for a little more rent, especially if I had listed it earlier. But now that I’ve tried for $1,825 and got it, I might push it a little further with the next vacancy and see how it goes.
If you have a rental property, how do you choose how much rent to charge?