A dilapidated house. Taken by Nicholas A. Tonelli *
I recently heard two stories about investment property owners that left their property vacant for an extended period of time. Investors refer to the lack of income from a property as Lost Rent.
One landlord owned a rental home in Concord, California. The home had been sitting vacant while the owner was determining what to do with it. The owner let it remain vacant for a period of 20 months. The house would rent for $2,200 per month. Over that period of time the owner’s lost rent was almost $44,000. This doesn’t include the costs that the owner paid for property taxes, insurance, and the like.
I heard from another real estate broker about a property that he was going to list. The property had sat vacant for 10 years. The broker estimated that the owner’s lost rent was over $250,000 over that 10 year period. This doesn’t include the HOA fees, taxes, and insurance costs of maintaining a property.
Apparently both of these owners had the means to make the payments and could cover the costs without the income from the properties. But realizing that the lost income could have generated a return for the investor can’t feel good.
Vacant buildings are likely to suffer greater wear and tear if left vacant. With no occupant to see leaks, notice pests, or dissuade vandalism, vacant homes are more likely to suffer rapid deterioration.
The moral of the story: A vacant property has huge opportunity costs in lost rent to the owner as is more likely to deteriorate.
*Photo Credit: Nicholas A. Tonelli used by Creative Commons License 2.0
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