I am often asked what the typical vacancy period is for single family home rentals here in Tucson. Using the Multiple Listing Service statistics, average days on market (DOM) historically hovers around 45 days. By the way, DOM is defined as the number of days between the day the property comes onto the market and the day it is rented. For the first six months of 2014, the average DOM was 53 days.
When I explain this to some people, they are in disbelief because they feel that is a very long time. Those most disillusioned by this DOM figure are those property owners that have managed the property for the past several years themselves and said that they typically rent their property in a day or two by simply placing a sign in the front yard. Although it is certainly possible to rent any property in a short amount of time occasionally, to beat the law of averages time and time again means something else is impacting the situation. If a property is routinely being rented up well below the average DOM, one of three things is true; the rental rate is too low, the minimum rental criteria is too low, or both the rental rate and rental criteria are too low. Usually the reason for the minimum DOM is the minimum rental criteria is so low, it doesn’t screen out the riff raff. Some examples of minimum rental criteria for prospective tenants include things like; they must have a gross monthly income at least three times the monthly rental rate, they must have positive past rental history references, they cannot have any evictions for at least the past three years, etc. For the property owners that routinely state that they rent their property in a day or two, the part of the story they often leave out is that they have no, or very low, minimum rental criteria. As a result, they also have tenant damages that routinely exceed the security deposit by a significant amount or the tenants commonly skip (i.e., the tenant suddenly leaves without paying the rent). After several of these experiences, that’s usually when they contact us.
Keep in mind that the minimum rental criteria and typical vacancy period go hand in hand. In other words, if your only rental criteria is that the prospective tenant must have the first month’s rent and security deposit to move-in, don’t be surprised by problems down the road. Conversely, if you have a very stringent minimum rental criteria, you may expect vacancy periods well above the average. For example, some landlords want tenants with a perfect credit score. In the current market, those tenants are few and far between so the vacancy period is typically much longer.
All this considered, some savvy landlords knowingly set the rent at a below market rental rate and increase the minimum rental criteria so they can attract the best qualified tenants. Although at first blush, this may seem counterintuitive, in the long run, these landlords actually make more money on their rental houses because they decrease the amount of damage to the property and increase the likelihood that the monthly rent will be paid in full each month. Although this is the approach I take with my own rentals and that I recommend for our clients, many clients struggle to see the bigger, long-term benefit.
The next time you have a rental vacancy, keep this in mind and make sure you take the approach that will benefit you the most in the long run.