Vacancy: Landlord's Worst Nightmare

Vacancies Keep me Awake at Night!

A few days ago we filled our last vacancy.

What a Relief!

The search took about three weeks. Our property manager began advertising the unit on November 19th. 

We started with $1,650 asking price, which was higher than the average for similar units in the area. There were barely any inquiries at that price. 

December and January are typically slow months for tenant search. People are busy with holiday prep and after holidays they go into hibernation-mode for the remainder of the winter. I was worried that we'd have a vacancy until Spring.

Vacancies Keep Me Awake at Night

The reason I am so afraid of vacancies is because they are very costly. Every month of vacancy, I'd have to come up with money to pay the mortgage, property taxes, utilities and, in case of this specific property, property management and condo fees as well.

Ouch!

Typically, they recommend that you include 2-5% vacancy fee in your cash flow calculations.

Given 5% vacancy, my annual cash flow would be $1,280. Or $100 a month.

In reality 5% only works if you manage to go without vacancies for a while. Actual losses are a lot higher!

For example, my annual loss for a year with one month of vacancy is about ($1,660). That's because:

I will not get a month of rent of $1,600
Pay about $300 for the utilities during that month
Pay about $2000 for tenant search and making the unit ready - fresh paint, minor fixes, etc. add up
Pay all regular expenses of $16,960...

If my property is vacant for two months, the loss will be ($3,560).

With three months of vacancy, I'd lose ($5,460).

Once I do find a tenant, it will take a l-o-o-o-o-o-o-o-o-o-o-o-o-ng time to catch up.

I'd need the tenant to stay for almost 2 years, to catch up after one month of vacancy.
The tenant will have to stick for over 3.5 years to catch up after two months of vacancy.
Lastly, the tenant will have to stay for almost 6 years, to fully catch up after three months of vacancy.

My math is simplified, of course. I don't take rent increases into account at all, for instance. Still, you get the idea why I hate vacancies. Vacancy losses are horrific.

The danger is on the flip side as well. If you rush and get a BAD tenant, you can end up with thousands and thousands in losses... See my blog post here for details - My $30,000 Mistake.

Here is a chart with the numbers in my examples above:

	Projected: 5% Vacancy	Actual:    1 month    Vacant	Actual:     2 months     Vacant	Actual:     3 months     Vacant
Gross Rent	$19,200	$19,200	$19,200	$19,200
Less Vacancy	($960)	($3,900)	($5,800)	($7,700)
Rent Income	$18,240	$15,300	$13,400	$11,500
Expenses
Financing Cost	$6,860	$6,860	$6,860	$6,860
Condo Fee	$5,304	$5,304	$5,304	$5,304
Property Taxes	$1,961	$1,961	$1,961	$1,961
Other	$1,200	$1,200	$1,200	$1,200
Property Management	$1,094	$1,094	$1,094	$1,094
Insurance	$540	$540	$540	$540
Total Expenses	$16,960	$16,960	$16,960	$16,960
Net Profit (Loss):	$1,280	($1,660)	($3,560)	($5,460)

Success! Got a Great Tenant

Needless to day, the pressure was on.

We lowered the price by $50 to $1,600. Luckily, the interest picked up! 

The ad generated over 230 views, 15 inquiries, three viewings, and a great application on December 9th. 

Our property manager uses Naborly for tenant screening. I've never seen a Naborly report before and was quite impressed. The multi-page document covered most of the information that I typically review for a candidate and gave some additional insights. Here is what the report covered:

• General info about all occupants
• Previous addresses and address verification
• Equifax credit summary and score
• Debt summary including monthly debt payments
• Rental history
• Financial information
• Employment history
• Analytics showing the likelihood of key tenancy risks (late payments, eviction, property damage) 
• Analytics showing the likelihood of a successful tenancy during the entire term.

Our property manager also collected a photo ID, a full credit report, and a letter from the employer. They conducted a face-to-face interview and verified employment and personal references. My property manager summarized their findings including possible risks.

I reviewed all the information as well and did my own due diligence. I typically research every piece of factual information and make sure all facts align and make sense. The way I do it is very simple: research every name, every address, every company name, every email, and every phone number that the candidate provided; look in Google and on all social media platforms; contact all references and chat with them; verify income.

In this case, all checks were successful. I accepted the application and to my delight, the tenant confirmed that they'd like to go forward as well.

No Vacancies!!!!!
Overwhelmed with JOY and
will definitely sleep like a baby :)

The property manager impressed me very much! This was the first time when they found a tenant for me and I loved how smooth the tenant on-boarding process was. 

As soon as this last vacancy was filled, I started sleeping like a baby again! 

In The Landlord Paradise

I love flowers on the side of the house!

In the last post, I shared that I've been tolerating an eight-month long vacancy because of fear, which wasn't even my fear to begin with, but it still paralyzed me.

Now, determined to fix the issue, I set out to find a great tenant ASAP.

Determining Price

To determine the price, I analyzed all for-rent ads on Kijiji. There were 39 of them.

Out of 39, only eight were listed under “House Rental” and the rest were in “Apartments and Condos”.

Even though my unit is an apartment in a duplex, it comes with a basement and a backyard, and takes up a larger part of a two-story house. I decided to put my ad under “House Rental”. It seems to be fair and puts my ad into a bucket with less competition.

Out of 39, the majority of 21 ads were two-bedroom places like mine.

In some cases, prices included all utilities, some covered only some of the services, and some were with tenants paying for everything in addition to the rent. In my case, utilities must be included because meters are not separate.

During my analysis, I made the following big assumptions about the monthly cost of utilities:

• ·         Water = $100
• ·         Hydro = $200
• ·         Water + Hydro = $300

I used these assumptions to calculate all inclusive price for all ads.

Next, I looked at two bedroom units by price and saw that out of 21,

·         6 were below $900

·         4 were between $900 and $1,000

·         6 were between $1,000 and $1,100

·         3 were between $1,100 and $1,200

·         2 were over $1,200.

Aiming to be in the middle and also making sure cash flow would be positive, I decided to price my unit at $1,150.

Placing the Ad

Kitchen Looks Great!

I placed the following ad:

Big 2 Bedroom Duplex for rent $1,150 all inclusive

$1,150.00 URGENT

Looking for responsible tenant(s) for this Spacious Move-In ready Duplex!

INCLUDES:

- Lots of Parking

- Large Patio & Backyard

HOME:

- Bright living and dining rooms

- Great functional kitchen

- 2 bedrooms with large built-in closets

- You'll love the spacious Bathroom (pls see pics)!

OTHER:

- Lots of storage space

- Central AC

- Appliances: Fridge, Stove, Dishwasher, Washer / Dryer

UTILITIES: all inclusive

Please text/call or email Anna at MY_PHONE / MY_EMAIL to book your viewing.

We'll be showing the unit this week on THURSDAY, FRIDAY and SATURDAY.

Please reach out to me now to book your viewing: MY_PHONE

Unreal Number of Inquiries

Living + Dining Remind me of Spain Villas - lots of white tile

I got a gazillion responses, mainly through texts!

I booked 31 viewings over four blocks of time: Thursday afternoon, Friday morning, Friday evening, and Saturday morning. Only two people are scheduled for Saturday morning.

So far, as of the end of Thursday, 20 people showed up out of 29.

Landlord Paradise

Since the level of interest turned out to be super high, I started to wonder if I’ve set the price too low.

I asked a few applicants how my unit and its price compare to other apartments they’ve seen. Most said that they are comparable; and only a couple of people said that I could charge a bit more. I checked with my property manager and he thought the price was right as well. It’s what people in the area can actually afford to pay for this size and type of a place.

It appears that the market is very landlord friendly. Lots of demand, and lack of units. Landlords get to choose from a large pool of applicants.

It’ll be a long time, before I forgive myself for an 8-month long vacancy in this landlord paradise type of market. Unreal. I’m such a la-la.

Home Alone: Ever Think a Tenant Might Come After You?

Source: Home Alone.

In my last post, I talked about a duplex conversion. Here’s a prequel to that story…

Eight months ago, we got a duplex in Chatham. The duplex has a one-bedroom unit at the front and a two-bedroom unit at the back. There was a door between the two apartments. I'll call it "The Door" for the remainder of this post.

At purchase, the small front unit was already rented to a tenant and the bigger back unit was vacant.

Long story short, my property manager and the tenant in the small unit did NOT start out with the right foot.

As a result, I was under the impression that the tenant in the front unit was a

• frightening, 
• sneaky, 
• irrational, 
• demanding, and 
• crazy person, who is 
• impossible to deal with, and 
• who’d sue me at the drop of a hat. 
• I was seriously afraid of her and her meaniness.

(Hmm... I was wondering if meaniness was even a word.
Now I know that it isn’t, but I’ll still keep it.)

By the end of 8-month long vacancy, the longest vacancy I’ve ever had,

I finally started questioning the absurdity of the situation.

After all, I am the owner of the property. My property manager is so scared of my tenant that he doesn’t take any action. I am so afraid of the tenant, because of how terrified my property manager is, that I haven’t done anything either for a very-very long time.

I know that every month without a second tenant costs me A LOT of money. The money that I don’t have. I am doomed unless I stop chickening out, step up, and take massive action. So I did….

Home Alone

This property is in Chatham, which is 3-hour drive away from home. I decided to come for a weekend and clean / paint / fix the back unit, so that it’s ready to be rented. If my property manager is too afraid to handle this, I’ll just deal with it myself.

I got to Chatham and kept to myself. I didn’t see the tenant face-to-face during the entire day. I cleaned, vacuumed, planned remaining action items around the unit, went to shop for small decorations for the upcoming showings, etc.

Source: Home Alone Movie - Bad Guy!

At sunset, I was starting to panic.

The darker it got outside, the more panicky I felt.

Finally, my brain started spinning and painting petrifying pictures…

I could hear my tenant having a guest over. They were watching TV…




My crazy-irrational thoughts went kind of like this:

“… There’s a door between the two apartments.

It doesn’t have a lock.

What if my tenant is indeed as horrifying as my property manager believes her to be?

What if she sneaks in during the night and kills me in my sleep?”

What if, there’s a lot of them next door?

How would I stay awake through the night to make sure that I’m prepared to run out of the house and call 9-1-1, if necessary?”

Survival Plan

Source: Home Alone Movie

I decided to set up my sleeping station on the main floor. I placed my sleeping bag strategically in the kitchen. As close as possible to the two exits: the main entrance and the patio door.

I couldn’t see The Door between the two units when I was laying down, but I’d only need to lean forward just a tiny bit to see it.

I tried very hard to stay awake.

I wanted my tenant to fall asleep first. The TV was still mumbling through the wall.

After a day of driving, cleaning, shopping, and working, with every minute passing by, it was getting more and more challenging to keep my eyes from shutting.

I put a Windex bottle next to my pillow. In the worst case, I’ll spray it into her eyes and run for my life!

I positioned a rolling chair right next to The Door with the intention that it would start rolling and make a rolling noise as soon as someone walks through The Door. And that'd wake me up!

I turned my computer on. It would be a lot more cheerful if I had youtube… but I didn’t want to use too much data on my phone.

Deadly silence on my side of The Door.

I turned on the only movie I had on my computer. Beauty and The Beast.

Bad decision! I dozed off before the first song ended…

OMG! She is Right Next to Me!

This is it.

I heard the sound of the rolling chair in my sleep.

It’s happening.

I opened my eyes, ready to run for my life:

“Oh, my gosh. I am so sorry! I just wanted to turn the AC up. I didn’t know you were here! I didn’t mean to scare you! Why are you sleeping on the floor? Would you like me to bring you a mattress?”, said my tenant. I could tell, she felt awkward.

As far as I can tell after meeting and spending some time with my tenant one-on-one, she is practical, to the point, and doesn’t plan to harm me or anyone else in any way.

I’m not sure what the actual misunderstandings and miscommunications have been about between the tenant and my property manager, but the "Horror Tenant" issue did cost me a lot of money, time, and stress.

Lesson learned –  Don’t let other people’s fears become your fears and put you into hibernation mode for months. If you have a problem, take action to start solving it.