For an investment-grade property manager, a few empty units are usually within an acceptable risk threshold. But smaller mom and pop owners could lose a large share of their income on a single vacancy—especially over the winter.
Over the past few years, Bentley Phillips has noticed his Chicago-based clients’ lease-ups slowing considerably during the winter months. “There’s only so many qualified renters left in the marketplace at the end of the season,” says Phillips, founder of Spaces Real Estate, a multifamily brokerage focused on small-scale local property owners. “The recurring theme over the past few years is that there are considerably more properties than there are qualified renters out there.”
To either avoid or manage the possibility of a vacant unit in the off-season, Phillips offers the following tips to property owners or managers with 40 or fewer units:
Lower the rent or offer incentives.
For smaller owners, it may be wiser to lower the rent on a particular unit by a few hundred dollars or offer an incentive, like a free month of rent. The lower price may draw in more budget-conscious renters, allowing owners to recoup the majority of the income that would otherwise have been lost.
“Larger companies can absorb a larger risk threshold than mom and pop companies can. For a lot of our clients in the Chicago area, this is their income stream,” says Phillips. "If you have six units at $2,000 a pop, you’re talking about $12,000. And if two units go vacant for four months, we’re talking about $4,000 a month over a four-month period. It’s pretty heavy hit to your bottom line.”
Renovate over the winter to rent during the spring.
If lowering the rent doesn’t work, Phillips will advise his clients to take the opportunity to renovate the vacant unit, raise the rent, and offer it to a qualified renter when spring begins. This is especially true in Chicago, where Phillips has noted an improvement in the early spring renters’ market over the past several years.
“Companies like myself, and a few other companies here in Chicago, have advised our landlords to bite the bullet,” Phillips says. “I know it sucks to lose out on a few months of rent. [But we say], let’s renovate this unit, let’s make it look really good, and let’s get you a good quality market rent for March 1.”
Choose quality over quantity.
Phillips advises smaller owners to pursue “high-quality” renters first and foremost, even at a lower price. If someone has a solid history of taking good care of their units, they are more likely to treat your units well—and potentially stay for longer, resulting in lower turnover.
Trust the expertise of property managers and leasing experts.
Beyond the steps above, Phillips recommends looking to their properties’ professionals for personalized guidance on what renters want—one that should come not only through word of mouth, but an actionable and data-based view of the rental market. For this he recommends analysis that considers both past performance and future development.
“There’s a lot of industry experts and portfolio managers that are able to deliver a robust comp analysis and analytical overview of a unit or portfolio,” Phillips says. “They need to be open with owners … and deliver true data analytics that showcase what comps are going for.”
