Rental Vacancies Are Nearing Record Lows: What It Means for Landlords

November 10, 2022 by Luis Rojo

Rental Vacancies Are Nearing Record Lows: What It Means for Landlords

You’ve likely noticed that your rental properties are experiencing fewer and shorter vacancies than usual lately. Even if you don’t have a rental property, you’ve likely seen mainstream publications on the surge in demand (and prices) for rental properties.

The data is in. For rental properties all across the country, vacancies are nearing record lows and demand is surging. But why is this happening? What does it mean for landlords? And what steps should you take now to improve your rental property management strategy?

Low Vacancies: The Root Causes

Let’s start by taking a look at some of the root causes for the low number of vacancies in the United States.

There are a few motivating causes happening simultaneously, including:

  • Limited inventory. Housing inventory has been low for many years, with declining rates of new home construction and a greater number of people moving. If, in a large city, there’s a growing number of people in need of housing and a finite number of houses available, the inevitable result is higher demand, fewer vacancies, and higher prices for renters.
  • Growing populations. It doesn’t help that many areas are seeing growing populations, increasing the total demand for housing. Overall, the United States isn’t growing as fast as it once did, but growth is still significant enough to play a significant role.
  • Increased demand for urban living. There’s also an increased demand for urban living. Major cities like Houston and Austin are thriving in this environment, attracting all kinds of people from all over the country. Rural environments are seeing less of this boom, with most of the low vacancy areas being concentrated in big cities.

What Low Vacancies Mean for Landlords

What does this mean for you as a landlord?

There are several downstream effects of this, most of which are inherently positive:

  • Easier rental property management. For starters, you should have an easier time managing your rental properties. Your existing tenants likely note that it would be hard to find another place to live, so they’ll be incentivized to stay at their current location. This is especially true if you don’t take this opportunity to increase rent for them. If your tenant does move out, or if you’re forced to remove your tenant, you should have little to no issue finding someone else to fill the void. In fact, when your rental property becomes open for rent again, you may have to entertain a bidding war between prospective tenants.
  • Justification for higher rent. Rent prices are increasing all around the country in response to this significantly increased demand. This is Economics 101; when supply remains consistent and demand increases, prices are forced to rise proportionally. Assuming you’re legally allowed to do so, this is a perfect opportunity to justify a rent increase.
  • Smoother cash flow. Vacancies are the bane of many landlords’ existence. Not only are they a major hassle to deal with, but they also represent a lapse in your income, eating into your profitability and sometimes completely sabotaging your return on investment. With fewer vacancies occurring less frequently, you’ll enjoy much smoother cash flow and more consistent financial management.
  • Property appreciation. Individuals and institutional financial players have been gobbling up rental properties for the past few years. High demand for rentals has pushed demand for rental property purchases even higher, making your existing properties appreciate in price. Of course, there’s also a bit of a downside in this, since it means expanding your property portfolio by adding a new rental property into the mix is also going to be more expensive for you.
  • Less competition. In some ways, these changes mitigate any competition problems you may have faced. If you’ve been forced to keep your rent artificially low to compete with other landlords in the area, the higher renter demand could be liberating for you.
  • Potential new interventions. It’s also important to understand that many politicians and influencers are looking at this situation as a bad thing, since it compromises the affordability of certain types of housing. There’s a chance your local political actors will use this as an opportunity to impose new interventions and laws, such as eviction moratoriums, which could complicate your strategy.

Actionable Strategies for You

What should you do in response to this new trend?

  • Work with a property management team. Working with a property management company could be the best strategic move you make. Your property management experts will be there to advise you on all your decisions and help you maintain all your existing properties. They can help you strategize and determine whether it’s appropriate to raise your rent prices and, if a tenant moves out, help you plan the best way to market your property during this time. Plus, they take care of almost everything on your behalf, from screening tenants to collecting rent, so this can be a truly passive income source for you.
  • Review your existing rental property portfolio and consider expanding. With property prices being so high, this isn’t necessarily the best time to purchase new property – but you can always find deals if you know where to look and if you’re generally a discerning buyer. Take a moment to review your existing rental property portfolio and consider expanding it if you find the right opportunities.
  • Consider increasing rent (if legal and appropriate). It’s a good idea to review rent increase laws in your area and talk to a lawyer if you have to. If it’s legal and appropriate to raise rent for your existing tenant, do so.
  • Keep an eye on the news. Keep an eye on any developments in the real estate market as they’re reported in the news. If the current rental property environment changes, you’ll need to change your strategies in response.

Are you interested in making the most of your current rental property portfolio? Or are you interested in expanding an existing portfolio with new rental properties? Green Residential can help you with everything, from finding new properties to managing existing ones. Contact us today for a free consultation!

Luis Rojo
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