When discussing a target rental rate with landlords, I typically describe the need to balance between the competing goals of maximizing their cash flow and minimizing their vacancy. Setting a higher listing price will hopefully result in a more positive cash flow, while setting a lower listing price will more likely result in more interest from prospective tenants, a quicker move-in date, and a decreased likelihood of extended vacancy.
Personally, when setting a listing price for my own rental properties, I lean toward the lower range of the suggested listing price because I have a complete aversion to vacancy! Vacancy not only equals lack of cash flow, but also introduces many risks.
First, a landlord’s insurance policy may require additional coverage for properties that are vacant for more than 30 days. Landlords should always check with their insurance provider to understand their policy’s requirements regarding coverage during vacancies.
Vacant properties can become a “hang out” for teens to congregate around or break into. We’ve had several instances of teens breaking into vacant properties during the winter months to find a warm place to smoke. In some areas of our county, homeless persons have also taken to breaking into vacant homes to find a warm place to sleep at night.
Other risks associated with vacant properties include:
- plumbing or roof leaks going undetected and causing damage,
- failures of HVAC systems leading to cold temperatures and freezing pipes,
- failures of sump pumps leading to undetected basement flooding,
- wind or snow storms causing undetected damage to roofs or other structures,
- unused plumbing or appliances leading to gaskets drying out leading to leaks after move-in.
To minimize these risks, our staff inspects vacant properties every week and after any major storm. However, the only true way to reduce the risks associated with vacant properties is to get a tenant moved in! That may require lowering the listing price to make the property more competitive, especially in winter months when the rental demand is at it’s lowest. We strongly encourage our landlords to consider the cost of vacancy with the same focus that they put on the need/desire for cash flow.