How To Time Renovations For Maximum Profit And Minimum Vacancy

November 10th, 2011 · 3 Comments · Property Management, Rental Property

Midtown Arts Center
Creative Commons License photo credit: Lori Greig

Here’s another Reader Question and an Answer too … from Brenda

Hi Rachelle,
I have one answer and one question.
Regarding poop…You can’t make them scoop but you can put it beside their door once you scoop it. Use your handy device and put it in a bag then place it close to their door so that they get a whiff when they come and go.
Regarding having place ready before you show it..Does that mean you are losing that months rent to have it empty and repaired first? so one tenant isn’t moving out Saturday and the new one moving in Sunday? As a landlord that’s where the panic hits. I would have to be prepared to loose a months rent to prepare a unit before showing it. I’d like to show it and promise to have the repairs painting etc done before they move in. a months rent is a months rent. As it is we pay a months rent to the rental agency so now we are talking 2 months rent plus supplies. I guess you would benefit only if you are an apartment building with several empty units anyway.
Cheers,
B

Answer

As a landlord, you are in the housing services business and your “product” is your rental space. In retail, merchandising is very important, presentation is very important. I’m sure everyone has happened on one of those small pathetic corner stores where you have to wipe the dust off the can of ravioli or whatever you’re planning to buy. No one wants to buy that crap and so it is with rental apartments as well. Having said that a smaller landlord only has to find one good tenant, we have to find more, lots more, month after month. It’s just the numbers, if you figure that the average tenant moves every 2 years and you have 100 units that means you’ll have 50 vacancies per year. If you divide 50 by 12 months of the year, you get roughly 4 apartments per month that have to be rented.

Back To Back Rentals

The optimum way to rent apartments is to find a tenant to move in the day the old tenant moves out. You need really good tenants to do this but I’ve done it, basically, the apartment has to be in really good condition, no pets, no smoking and clean with good furniture. You also need to trust that your old tenant will move out on time, leave the place in good condition, and be cooperative with your efforts to rent the place.

But Rachelle…”I found a great tenant who rented my apartment even though my old tenant smoked pot, had a huge dog, and had a motorcycle in his dining room.” 99% of the time, you did not find the great tenant, you found a “answer to your prayers tenant” who will be big time trouble down the road. The other 1% of the time, you got lucky. Getting lucky is good but it’s not a business plan.

Ask Yourself…Who Would Rent This?

If the answer to your question is that no one decent would ever live here or it’s not fit for a dog, then stop yourself right away. Fix the place and then rent it before you find a tenant from hell. Because they are looking for desperate landlords trying to rent their place.

How Do I Do It?

Turn around time from tenant move out date is extremely important, those apples can’t stay on the shelf for long or I’ll lose money.

  1. Pre-inspections – Before the tenant moves out I’ve inspected the place and I know what has to be done. Why wait until the tenant leaves? Yeah I miss a few things, but I know 90% of the stuff I need to do, once the reno’s underway I’ll be going to Home Depot anyways, if I have to pick up a few more supplies it’s not the end of the world.
  2. Call contractors – I know roughly when the tenant is moving out and what needs to be done so I call then ahead so they can pencil me in if I only have one go to guy. If I need quotes, I can call the contractors in ahead of time.
  3. Call Cleaner
  4. Get supplies
  5. Wait for tenant to move.

You have 60 days to accomplish this…why wait until the day they move out to start this. After all, you know as well as I do that getting the quoting and the availability of the contractor takes the most time for most projects.

Cleaning…

There are different levels of clean. Specifically, no decent person wants to live in another person’s filth. So if you’re showing the apartment, tools and contractor dust and dirt are OK. Dirty fridges, baths, garbage, bugs, and so on are not. So you may have to clean the place twice. First remove all traces of the previous occupant’s bad housekeeping. Then let the contractors get their work done. Then clean the place again removing all traces of the contractors. In the meantime, show the place…give contractors instructions that they can leave their tools but that they have to keep the place organized.

Timing

Contractors are pretty fast once they get working especially if they’re experienced in this type of reno. Tenants do not generally know how fast contractors can work. So if your contractor is not finished by the 15th of the month, tenants will not believe that they can be done before the end of the month. They’ll be afraid that they’ll have to move into a place that isn’t finished. So they will not rent it.

Tricks Property Managers Play…

The best ace property managers have our sleeves is that we have more than one unit. We can show a sample unit. It’s not unusual for us to have a nicely finished apartment waiting for a tenant to move in. We can show that one even it’s rented, while our other units are unfinished or being worked on. It has to be rent ready to even show. If I have no choice then showing a half finished unit leads to unfortunate results. I too end up with 2 months of vacancy. We also have contractors on speed dial and we give them steady work.

Problems

Here’s some of the common stresses and problems I have to deal with…

  1. Tenants don’t move out when they are supposed to and we have someone moving in.
  2. Contractors don’t finish on time
  3. Contractors don’t show up at all

Bottom line is… nothing is guaranteed. Even very good tenants have problems with movers, elevators break down, and stress ensues. We’re pretty much under control on the sites I manage now, but I did work in a much larger distressed building and one month we had 36 move ins and 20+ move outs.  You’re lucky to even survive that kind of day, and you definitely need more than a couple beer when it’s over.

I do not have all the answers to this question, it’s a rock and hard place kind of problem. Do you take your time? Or maximize revenue? Stress or Money Problems? Take your pick!

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3 Comments so far ↓

  • Update: November 6 – 12 | The Outlier Model

    […] Maximizing your rental income can be a tricky business.  We’ve taken split approach to this issue.  Some renovations we are doing incrementally while the tenant is still living there.  This are mostly “nice to haves” like installing a dishwasher or providing a storage locker.  Of course, this only works if you have an agreeable tenant who isn’t going to damage your fancy new renovations AND if the tenant values the renovations enough to stay that much longer in your suite.  Some renovations, like new carpeting/flooring are going to wait until after the tenants leave – wear and tear means it wouldn’t be worth it for us to provide this upgrade.  Rachel from Landlord Rescue weighs on on this topic. […]

  • Devore

    Almost sounds like someone wants the best of both worlds 😉 If one tenant is moving out on the 31st, and the next one moving in on the 1st, how will you be painting and fixing up the place? At the new tenant’s inconvenience?

    “Traditional” rental advice says to set aside a month’s rent for management, one month for maintenance/contingency, and another month for vacancy allowance. That’s the business model. If it doesn’t work, perhaps there is a problem with the rent, or the purchase price.

    • Rachelle

      Well Devore, it is standard in every lease in the buildings I manage to sign a separate agreement called a letter of undertaking. This gives me 10 days to fix and paint the apartment. Also there is a problem with that advice, and there is a problem with rents and purchases prices in the GTA. Namely it is currently almost impossible to find a property with anything but a negative cap rate in the GTA.

      I would add that landlords should have more money set aside as a contingency fund because a bad tenant takes at least 4 months to get out as we speak in Toronto. More if they know what they are doing.

      In my Mississauga townhouse complex we are setting aside 15 days for renos and they are already rented before the tenant vacates. In North York I have a one month turnaround for renos and I had only one available, the application came tonight. If I had my way all apartments would be ready on the 2nd of the month and rented for the end of that month. The downtown condos I’ve rented… they rent back to back. I have 5 I manage for one owner and in 4 years and about 8 tenants, we’ve had 3 total months of vacancy. I’d like to think this is because of my superior management skills…it’s not. The superior quality of tenant leaves the apartment in great condition, it’s clean and no damages to speak of so far. I don’t even have to clean. That is nice…

      I would be very unhappy with a three month turn around.