All good things must come to an end. Whether your resident has been with you for a year or more at some point they will be needing to Move Out which is Phase Four of the Resident Life Cycle. This leads us back to Phase One… Leasing! To maximize the investment, a decision must be made as to how the leasing will be approached. In the marketplace there are generally two ways to approach leasing once a move out comes into play. For the following two examples, we will assume the rental amount of $4,000 ($4,000 Rent / 30 Days = $133.33 per Day) for simple math and assume that we have the marketing materials (professional photos, 3-D tours, and floorplan) from the previous time the property was leased. We will also do the math only accounting for the vacancy costs to have an apples-to-apples comparison. There are additional costs incurred such as leasing fees and the actual maintenance costs of going through The Turn Process, but these will be the same regardless of which method is being chosen therefore the focus of this example is on reducing vacancy costs. Let’s explore the two methods that are available to Lease a property once a resident is scheduled to move out.
METHOD 1: Leasing After a Move Out
The most common method in the marketplace is to start the leasing process after a resident has moved out and after the property has gone through The Turn Process and is move-in ready. Once the property is on the market for rent we need to account for the Average Days on Market. This will vary based on the area, type of property, presentation, condition and other factors. For more information on helping reduce the average days on the market read our blog called Keys to Leasing Success. To use a rule of thumb in our local market we will use 21 days as the average days on market.
MATH OVERVIEW
The Turn Process: 10 Days x $133.33 is $1,333.30
Average Days on Market: 21 Days x $133.33 is $2,799.93
Total Vacancy Costs: $4,133.23
Pros & Cons
Pros: The property can be shown at any time and shows better when it’s vacant and can be available for immediate move-in. The property management company does not need to deal with the process of leasing the property with residents in place.
Cons: If the dynamic with the current residents is not a positive one, then the resident may not work with us to allow showings and if they do they may not help pick up and clean-up to have it show it well. The biggest con is of course, the additional vacancy.
METHOD 2: Leasing During a Move Out
The second method in the marketplace is to start the Leasing process once a resident has provided their official 30-Day Notice to Move Out. Here’s our process.
Going Live: We go on the market the following week from when we get the official 30-Day Notice to Move Out. Assuming we’ve previously leased the property before, we will have the professional photos, 3-D tour and floorplan in place which gives the marketplace what they are looking for and showcases the property as best as possible resulting in maximum exposure.
Showing Via Open House: Yes, it is possible to show the property during regular business hours to any perspective interested party. However… this rarely works as it makes it tough for the current residents to plan accordingly and the property does not show well as it’s not logical to expect the residents to pick up their home to have it show well. Experience shows that the best way to show the property during this timeframe is via Open Houses once a week on the weekend. This allows the residents to plan on being out of the home for a relatively short period of time and there’s more buy-in from them to help pick up to have the property show well as they are only being asked to do this once a week. In addition, this forces the marketplace to view the property via Open House once a week creating the fear of loss if they don’t act quickly to apply and obtain the property. A key component of this Open House is to provide perspective applicants with all of the information they are looking for in order to make an educated decision on whether to apply or not. We work to provide all needed information via an Open House Flyer. For a sample of the information provided you can view a sample flyer by clicking HERE.
Lease Start Date: The goal with this method is to go through the entire Leasing process (Marketing, Showings & Screenings) and have the lease start the day the turn process has been completed, if not soon after.
Strategic Rental Price: With the property going on the market approximately 30 days prior to the move out date this equates to 4 Open Houses maximum prior to having the residents move out, maybe 3. This is a key metric as the rental price being offered has to be conservative (not too high) to where it will entice perspective renters to apply now. If the goal is to reduce or eliminate vacancy, then the goal is to Set & Adjust the Rental Price to where it will cause applications to come in.
MATH OVERVIEW
The Turn Process: 10 Days x $133.33 is $1,333.30
Total Vacancy Costs: $1,333.30
Pros & Cons:
Pros: The number one reason to do this is to help an owner reduce vacancy and therefore net more money.
Cons: There are several factors that need to be in place for this approach to work and even then, its note 100% guaranteed to work all the time. This approach works under the assumption that the marketing material (professional photos, 3-D tour, floorplan) is in place, that there’s a good working relationship with the existing residents where they will cooperate to show the property. This also requires a lot more strategic planning and execution from a property management in executing properly.
CONCLUSION
Operating a rental property as a business requires careful planning and attention to detail to maximize profits. By using the approach above we can help owners maximize the return on their investment!
