Vacancy is an inevitable part of owning and managing rental properties in San Diego. While we aim to minimize vacancy, it still occurs due to tenant turnover, evictions, needed repairs, and other factors. But do San Diego landlords and property managers truly understand the financial impact of vacancy? beyond just the lost rent?
The actual costs of a vacant rental can be eye-opening. When you calculate all the expenses associated with vacancy over time, it adds up to a significant hit to your bottom line. Being aware of these full costs can help motivate you to keep vacancy rates down however possible.
How do I Calculate My Vacancy Loss?
To get a complete picture of vacancy costs for your San Diego rental properties, you need to tally:
Lost Rent - This is the most obvious component, the rent you miss out on for the time it takes to fill the unit. Calculate your typical monthly rent amount multiplied by the number of months vacant.
Marketing - What you spend to advertise the vacancy and screen applicants, including online listings, signage, open houses, credit checks, etc.
Turnover Costs - Any cleaning, paint, carpet cleaning, repairs or other updates to get the unit market-ready.
Utilities - If you pay for any utilities like water/sewer, gas, trash pickup on vacant units.
Property Management Fees - If you use a property manager, their monthly fee for the vacant period.
Property Taxes - Taxes are still owed even if no rent is coming in.
Insurance - You must maintain insurance coverage on vacant properties.
HOA/Condo Fees - If applicable, HOA fees are still payable on empty units.
Yard Maintenance & Security - Landscaping and measures to protect the empty property from damage/crime.
Opportunity Cost - What you could have earned if that capital was invested elsewhere rather than tied up in a non-performing asset.
As you can see, the list goes on and on. And in a high-demand, expensive rental market like San Diego, these costs quickly add up. Fortunately, there are many online vacancy cost calculators that make it easy to estimate the total impact of vacancy at your properties. We provide one right here on our website that takes into account all the major vacancy cost factors.
Simply input details like:
- Your monthly rent amount
- Estimated vacancy period
- Your average turnover costs
- Monthly utilities you cover
- Typical marketing fees
- Property management rates
- Any other recurring ownership costs
Our calculator will crunch the numbers and give you a total estimated cost of the unit sitting vacant.
Armed with this vacancy cost estimate, you can use it to:
- Set rental rates at a level that covers projected vacancy costs and still gives your desired ROI. You may determine you need to raise rents to offset vacancies.
- Evaluate the true expense of evicting a problem tenant versus the cost of keeping them and dealing with issues. The total cost of vacancy might sway you to work through problems rather than evict.
- Assess the real return on investment of owning a particular rental property that has sustained vacancies.
- Motivate you to take proactive steps to reduce vacancy, like expedited maintenance and turnover, premium tenant screening, lease incentives, and strong tenant communication.
- Gauge the prudence of rent specials. Is offering 1 month free on a 12-month lease worth it if it fills units faster? Run the numbers.
- Evaluate offering tenant referral bonuses if they find a replacement renter, potentially reducing vacancy periods.
- Decide if using a property management company is warranted by weighing the fees versus expected reduction in vacancy.
- Budget and set aside funds each month to cover upcoming vacancies.
As a San Diego landlord, you can’t completely avoid vacancy. But by knowing its full costs, you can make smart business decisions to minimize vacancies and offset the expenses. This keeps your rental property investments as profitable as possible.
Key Factors That Drive Up Vacancy Costs in San Diego
San Diego vacancy costs can be especially high due to our pricey, competitive rental market. Here are some of the key factors that drive up vacancy expenses here:
High Rents - With the median apartment rent in San Diego topping $2,000 a month, lost rent costs rack up quickly whenever a unit sits empty.
Low Inventory - San Diego has had one of the lowest rental vacancy rates in the country, currently around 5%. With high demand from renters and limited unit availability, the pressure is on to fill vacancies ASAP.
Seasonal Variations - San Diego vacancy rates fluctuate seasonally, typically spiking in fall when students leave and summer when rentals turnover. Periods of low vacancy in winter and spring are offset by higher vacancies the rest of the year.
Military Impact - San Diego’s huge military presence results in frequent renter turnover as military personnel rotate assignments every 2-3 years on average.
Tenant Transience - With so many new residents relocat ing here, renters often hop between rentals seeking their ideal neighborhood before settling in long-term. The 2 years or less tendency inflates vacancies.
High Turnover Costs - From city permit fees to high contractor rates, even basic turnover for paint, carpet cleaning and repairs is expensive. Nicer properties can easily spend $5,000 or more reconditioning units.
Strong Tenant Protections - Tenant-friendly state laws like requiring “just cause” for eviction make it harder to remove problem tenants, extending vacancies.
Seasonal Visitors - Some properties cater to seasonal visitors like spring training baseball fans, inflating vacancies in shoulder seasons.
While the total vacancy costs can be a tough pill to swallow, you need to know the reality. Armed with the true numbers, you can then minimize the financial downsides through smart management strategies.
Our vacancy calculator tool provides the key information you need to make data-driven decisions for your San Diego rental property.
Getting the Most on Your Rental Investment Return in Spite of Vacancies
Even in a market with unavoidable seasonal swings and turnover like San Diego, you can take steps to maximize profits and return on investment:
- Set rents at profitable levels right from the start, with sufficient cushion to withstand vacancies. Don’t leave money on the table with rents that are too low.
- Screen tenants thoroughly, even when the market is tight. Avoid problem tenants likely to cause compliance issues or damage leading to extended vacancies.
- Use reputable property management to oversee tenant compliance, maintenance issues and turnovers. Their expertise is worth the fees.
- Keep properties updated and in move-in condition. Invest in maintenance, renovations and cosmetic improvements that appeal to renters and allow quick turnovers.
- Market vacancies aggressively through online listings and your professional network of realtors, apartment locators, corporate relocation agents, etc.
- Offer enticing move-in promotions, when possible, like a month of free rent to fill EMPTY units faster. Just run the numbers first to validate the return.
- Stay on top of repairs and maintenance to retain existing tenants. Address issues quickly to avoid vacancies from disgruntled tenants moving out.
- Make tenants feel valued through holiday gifts, appreciation events and strong communication. Handle conflicts promptly and fairly to prevent evictions.
Yes, vacancy costs can seriously reduce your profit margins as a San Diego landlord. The key is going in with eyes wide open about the reality using our thorough vacancy cost calculator. Then you can apply strategies based on real data to minimize vacancies and continue earning strong returns from your rental investment properties.