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How should landlords think about property vacancy?

Tenant vacancy is a huge cost to any landlord, regardless of the geographic location of the property. Think of it this way: with 52 weeks of rent in one full-year lease, every week of vacancy costs a landlord about 1.9% of the annual rent value.

If that doesn't seem like a lot, treating property vacancy like a finance charge (think credit card APR) helps underscore the huge cost to not renting a unit as quickly as possible. Let's run a few numbers to demonstrate the point.

Take a rental market where the listing price is approximately $2,570. The median home value in this market is approximately $520,000. The median rental unit yields $30,840 in annual rent revenue, if fully occupied. Let's make another assumption to highlight the corrosive effect of vacancy. Conventional mortgages typically require 20% down payments by property owners; for the median property we're highlighting, that would equal $104,000.

Thus in this example, a landlord borrows $104,000 in order to secure $30,840 in annual rent revenue. Daily vacancy on that particular unit has the equivalent effect of a 29.7% APR finance charge! The effect of vacancy is even more pronounced if you consider that landlords with mortgages have to use proceeds from rent to help pay principal, interest, and taxes, which obviously can't be done if no rent is collected.

One week of vacancy in our example rental unit costs a landlord $591.91 per week - and that's money that has absolutely zero economic value and no rate of return. Squire can help property owners maximize the reach and effectiveness of their rental listings.



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