Week 21: Realistic Occupancy Rates and Eviction Realities

Your Occupancy Rate

I try to anticipate how many months a year that I can count on collecting rent. Some investors buy property assuming it will never be vacant, or never miss a rent payment. Not good planning. On a lower end property, I may only budget 10 months of rent – planning for 85% of the potential rent. I build my budget with the understanding that I am only going to collect $5,100 a year on a $500/month unit.

On average, I plan for 90% collected, and 10% vacant, collecting rent roughly 11 times every 12-month period. If your occupancy rate is better than average, great! But be realistic with your budgeting.

The Eviction Process

I know what you are thinking—nice people don’t evict people. Well, nice investors deserve a consistent return on their investment. In most cases, we start the eviction process while we work with the tenant, suggesting sources of financial assistance and helping them get current.

If we act early, we can usually get a court date early the next month and have possession of the house soon thereafter. Our investors may lose two months’ rent. If a property manager hesitates just a few days, you can easily lose three months’ rent. The majority of the time the tenant will come up with the money owed in addition to the court costs and attorney fees and remain in the property. Maybe a third of the time they vacate the property on their own prior to the court date. And only rarely is a forced eviction necessary. That, as you can imagine, is never pleasant, but it is one of the things you pay a property manager to do.

Late Fees

Some owners opt for $5.00 a day after the fifth, and others choose a flat percentage. The late fee discourages tenants from paying late while compensating owners for income needed to meet monthly obligations. Unpaid late fees are deducted from the tenant’s security deposit at the end of the lease term.