Cash is King - Cashflow is Queen - But when - That's my question

[nubiwan]

Owning several rental properties I have had reasonable turnover in my rentals over the past 10 years. In that time, I have literally been able to turn properties over to new renters within a week, even days of receiving notice from the previous tenant. Simply placed an ad on Kijiji and wait for the texts to come in, arrange viewings etc. Today, I am sitting on 2 properties that have been advertised for about 3-4 weeks, and the response is quite frosty, by comparison. Had viewings on them both, but I am competing with a large number of rental properties that have recently become available, as well as home builders offering new homes (they now cannot sell) up for rent. In short, there are a lot of options out there for renters.

It often brings a wry smile to my face when I read Thomas "Cash is King - Cash flow is Queen" analogy, but my question is how long do you wait? How long do you wait to adjust rental prices down? How much of an adjustment is required, and how do you know the right amount, in the absence of local market rental statistics? Is it better to hold out for 2-3 months on a vacant property, than to lock into a year long lease with a 15-20% mark down? If the economy rebounds in 17, then will I regret not having a kneejerk reaction to the present slump.

Also, how should I interpret hits on a Kijiji ad? My typical go to website for advertising residential rentals. If I see 40-50 page hits without a call, then is that reason to lower my rental rate? In the past, I have simply deleted and reinserted, or bumped existing ads to increase exposure.

Perhaps I should ask what kind of response and vacancy problems others on this forum have experienced lately. What adjustments or marketing tactics have you used to generate more interest in available rentals? Interested to see what discussion this can generate.

Should point out that I live in an Oil economy both in terms of production and out of province employment. It is not Alberta, but as with Alberta, the ass has fallen out of the local economy. Real estate prices have levelled, sales have dropped, and house prices are likely set to adjust downward from all time (unprecedented) highs.

 

[Matt Crowley]

Strategies in a tough market:

1. I would suggest developing a simple database of rents. You don't need to over the top and cover every last category. You know your client very well after serving them for 10 years, you know who they are and why they choose to rent your suite. So record on an Excel sheet only the comparable houses # bedrooms, #bath and rental incentives. Be thorough and record every single listing on Kijiji. It will take you about 4 hours. Have sufficient detail that you can recognize an ad week over week. Go back next week and insert all of the rows of the previous week Kijiji investigation below last week's rows. Then change the date and update all rents. Track which units are absorbed, price movement, ect. This will give you a good idea of absorption. Absorption is almost never talked about but this is what any professional developer is going to base decisions on, and right now it sounds like you don't have very good market information. There isn't much of a decision to make, really. You need to take the temperature read of the market and then choose if you want to have a rent to compete with the other rents / incentives out there.

I see a lot of gimmick-recommendations out there and real estate seems to bring out the worst kind of BS hustlers. Gift baskets and special wording on ads and professional pictures. It all helps, sure. But it is mostly gimmicks where someone has sold one apartment for $500 more than it was worth and imagine they are suddenly bigger than the market. They were just lucky.

2. My strategy is tenant profile first. If that means rents are lower this year, then fine. I don't care. I want people who take care of my home and can get along with each other.

3. Lower the headline rent as much as possible. Pull out the garage, don't charge fixed utilities, reduce any unnecessary amenities that you can, and then allow tenants the option to pay for upgrades. Offer as much of an a-la-carte product as possible to get that headline rent down as much as possible. Options are worth money: shorter term rentals at higher rental rate. Lower the DD (and require tenant's insurance).

4. Renovate today. It is easy to be a long-term investor in a boom, but right now you will not find better rates on tradespeople. If you have deferred maintenance you will never receive better customer service than today. It might be time to upgrade.

5. My rule of thumb for Kijiji in Edmonton is that I should get 4 - 5 serious calls per week about my ad or I am out of touch with the market. I don't care about impressions very much. I repost my ad every 2 weeks (delete it and repost it) so that my impression count goes back down to 0 and my ad looks fresh. I change the main picture and headline every couple of weeks. I pay for Top Ad every week.

6. Road signage is very useful, especially in a crowded internet market. Worth the investment.

 

[nubiwan]

Thanks - very good answers. Just what I was interested in.

 

[Rickson9]

awesome advice

 

[Thomas Beyer]

15-20% down is normal in AB today on vacant units, in all of our buildings. More in some locations ( say older units that used to get $1800 might get only $1300 which almost 30% down) that I have been made aware off.

If there is no rent control you can go up in time when market recovers but if the NDP does indeed put in rent control you cannot go up nearly as fast.

Keep in mind that in many cases rents went up 10% a year from 2009 to 2014, or 40-50% so 15-20% down has to be seen in context.

Tenant retention and better marketing of vacant units is critical.

 

[nubiwan]

Just reposted my $1200 units at $1100 and an apartment I had at 975 down to 900, and within 6 hours I have 5 viewings booked tomorrow. That's more like it. I like the idea of lowering headline rent with fewer amenities. Thinking my washer and dryer can be used as an optional feature. Already did this somewhat as my 975 originally included utility at $1200. I can always add fixed utilities once they see my place, and tenants like the idea of fixed utilities. Don't they? Works for me in this investment.