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Filling Vacancy is Key to Real Estate Profits
By David Campbell On 10/08/2011 · Leave a Comment · In Cashflow Investing, Investment Training, Newsletter
Filling vacant property in a timely manner is imperative to your success as a real estate investor.
The value of a commercial property is directly related to the value of the tenant leasing that property. Most common cashflow problems result when a property falls vacant and the manager / owner is ineffectual at filling the vacancy. Once you become skilled at filling vacant properties, you can direct that skill at filling other people’s vacant properties for profit. There are a lot of commercial property owners and prospective investors who would gladly give you a piece of their equity in exchange for filling vacant properties with highly qualified tenants.
Here is my personal checklist to filling vacant property for profit:
- Identify your prospective tenant profile.
- Make the property physically rent ready
- Choose a competitive rent and security deposit structure (sometimes a tenant will choose your property over your competition because your deposit is more within his reach.
- Create professional-looking marketing materials which feature ample photographs.
- Expose your marketing materials to the places prospective tenants are looking.
- Provide good customer service when prospective tenants call.
- Maintain a list of prospective tenant phone calls and call back prospects until they tell you they have leased another property.
- Implement reasonable selection criteria when tenants apply to rent.
- If prospective tenants are not calling you, go call them! Ask the neighbors for referrals. If filling a commercial property, flip through the phone book or local trade associations and cold call for tenants (or have your leasing broker do this).
- If your vacancy is in a commercial property, consider starting or purchasing a business to become your tenant. Often times purchasing a franchise and hiring a competent manager is cheaper than letting your commercial property sit vacant.
- If market rents have dropped below what is sustainable for your personal cashflow, invite your tenant to co-own the property with you in exchange for a premium rent structure; or take on an investment partner who supplements the negative cashflow in exchange for owning a piece of your equity.
If you are doing ALL of the above steps, your property should not stay vacant very long. The exception to this is if the marketplace does not have enough demand drivers to fill the vacancy. In that case, consider a change of use for the property.
Sometimes taking a property through a change of use is highly profitable; other times it is just a way to mitigate your loss on an investment burned by an unexpectedly changing local economy. If there is no demand for housing in your area, perhaps your vacant residential property is better suited as a daycare facility, dentist office, drug rehab center, assisted living, etc. If there is no demand for your vacant retail property, perhaps the property could be converted to vehicle storage, industrial distribution, refrigerated storage, data warehousing, or consider scraping the building and returning it to a previous agriculture use.
If your property is hopelessly vacant and there is no chance for profitable re-use, use this information to gain leverage with your lender. If they see the situation the same way as you do, you might be able to negotiate a lower payment or principal reduction on your loan balance.
To your success,
David Campbell – Founder of Hassle-free Cashflow Investing
Real Estate Investor / Developer / Author
Office: (866) 931-9149 Ext. 1