Re: We are bleeding - Posted by eric-fl
Posted by eric-fl on October 14, 2003 at 11:00:39:
Bleeding is caused by vacancies. The fastest solution to your problem is to rent them out. It’s faster than an outright sale, or even a sale on terms. It stops the bleeding. I know, I’ve been there. Just, whatever you do, make sure you put a QUALIFIED tenant in them so you don’t wind up out more months. Screen your tenants; pull their credit. If you don’t know how to do this, pay someone to do it for you. Worth every penny.
I just recently attended a seminar where an investor introduced the concept of “swing”. His example was this:
Market rent: $1300
How much does a 1 month vacancy cost? Answer: $2100. Why? Because if you don’t have a tenant, you lose a) the opportunity cost of $1300, plus b) $800 out of your own pocket. Yes, the $800 has to be paid either way, but if you’re paying it instead of a tenant, then it’s a double-hit. Personally, I identified with this concept immediately, and it illustrates one principle above all else: VACANCIES ARE UNACCEPTABLE. You MUST not have them any longer than absolutely necessary. Even renting to a qualified tenant, at negative cash flow, for a year, is almost always going to be economically better than even a two month vacancy, unless the property throws off a ton of cash flow. And if it does, then that probably means you have a ton of equity, which gives you more options anyway.