Protecting Your Rental Income
By Steve Gillman - 2010
Let that rental income drop below your expenses and a good
investment becomes a financial burden. What can you do to keep
that income high, and raise it even more? Try the following.
Keep Those Apartments Rented
One of the most important goals has to be to to keep that
vacancy rate down. Keeping tenants happy is an obvious approach
to this. How do you do that? Talk to them, and resolve any problem
quickly. Find out why tenants leave, and if any of them are leaving
for reasons that are within your control, do something about
it (as much as possible - don't lower rent just because a few
can't afford it).
Choosing the right tenants in the first place is a great way
to reduce vacancy rates and keep that rental income coming in.
You will never be able to instantly fill an apartment. They need
to be cleaned, and perhaps advertised, so more turnover means
more of this "down time." Suppose it takes a month
on average to fill an empty apartment, and you fill them with
tenants that stay an average of two years instead of one. You
just cut your vacancy rate from 8% to 4%.
How do you know who will stay a long time? Start by listening
to what they say, so you can rule out the obvious, "this
will work for now" tenants. But beyond what they say, pay
particular attention to their history. A man who has moved every
six months for the last five years will likely move again soon.
On the other hand, a family that stayed six years at their last
place is likely to do the same here.
Another way to reduce that vacancy rate is to rent out those
vacant apartments more quickly. Have advertising ready to go
before you have a vacancy. Keep applications in a file so you
can call possible tenants the moment you have a vacancy - they
may still be looking for a place. Keep in touch with other landlords
with whom you can trade "leads." If his place is full,
he can refer prospective tenants your way and you can do the
same for him.
If you hire a property management company, ask what their
typical vacancy rate is, and how long it takes them to prepare
and rent a vacant apartment. Choose the best according to results,
not just by what they charge. And if they are better at this
than you, definitely hire help.
Other Ways to Protect Rental Income
A couple years ago there was at least one company offering
rent guarantees. All applicants had to be screened by them, and
then you typically paid 1/2 of one months rent per year to be
guaranteed that the tenant will pay for the term of the lease.
I'm not sure if this idea has caught on yet (I haven't heard
more about it), but it does show the value of a good screening
routine. If they made money, and landlords thought it was worth
it, they must have been doing a better job than landlords at
choosing tenants. That is something to think about.
Some investors only rent to those who will provide a credit
card number, and allow them to run the rent charges on the card
if the tenant is a day late on rent. Incentives for paying on
time have also worked for some properties. These usually involve
a prize that can be won by any tenant who pays on time.
Getting rid of non-paying tenants is another important part
of keeping that rental income up. You need to get the next -
and better - renter in there. Have an eviction process that is
as fast as it can legally be, and have it ready to put into action
at all times. Consider paying non-paying tenants to leave fast.
This may be tough to stomach, but if he'll get out this week
for $100 cash, rather than wait a month for the eviction to go
through, it means you get that new renter in a few weeks faster.
Finally, the most obvious way to keep that rental income up
is to raise the rent you charge. Check comparable properties
if you haven't in a while. If your rents are low, raise them.
Your renters may complain, but if others charge the same (or
even slightly less), there is no real incentive for them to leave.