In a fiercely competitive rental market, rentals can often sit vacant for several months before a new tenant is found. Because of the difficulty in renting property in a “renter’s market”, a smart financial strategy is to plan ahead for a possible long-term vacancy. Planning ahead helps you manage payments, utilities, and other costs that will have to come out of your own personal income while the property sits vacant. Here’s some ideas of how to trim your rental “overhead” and build up some reserve funds to weather a long vacancy.
Prepare lease agreements so that the house comes vacant at a good time. Certain times of year just aren’t good for renting out a property. For this reason, it’s a good move to have a lease expire in the most popular months for house hunting in your town. For example, because I live in a college town, my rentals are toughest to lease from September to March, with April offering the best chance of finding a tenant in a week or less. To minimize the loss of rental income, my leases always run out in April.
Sign up for landlord utility agreements with the utility companies. Some utility companies don’t advertise this fact, but both water, power, and gas companies offer up “utility agreement contracts” which provides landlords with either free or substantially reduced reconnect fee, and a waiver of a deposit. This agreement can save a landlord a hefty chunk of change when switching the utilities out of the renter’s name to his own. You can read more about how utility agreements work here.
Keep utilities down to a bare minimum. When a house is empty, it’s pretty pointless to keep the heat set to 60 and the water heater on. What we’ll do is set back the thermostat to 50 during freezing months and only raise the temperature about an hour before it’s being shown. Other things that can be done to minimize utility use is to turn off all the lights (except the porch light), turn off the AC, lower the temperature of the water heater, and stop trash pickup.
Sock money into savings while the house is leased. During the term of a current lease, make it a priority to sock away at least 25% of that monthly rental income into a savings account. By the end of the year, you’ll have some savings to draw against when there’s no rental income to cover the mortgage payments. (Saving 25% will cover three mortgage payments). Taking advantage of bank offered payment holidays during this time can also help, plus tapping into things like tax refunds, rebates, and so on. Here’s another great article that will explain how it’s possible to put money in savings despite a tough economy.
It’s hard enough to make those rental mortgage payments in good economy, let alone a rotten one. By planning ahead, trimming costs where possible, and making it a priority to save money, these tips will make it possible to cover rental costs and mortgage payments until a new tenant comes along.