Right now, I have a bunch of apartments sitting vacant.
That sounds crazy, right? After all, we are in the business of renting apartments. Having vacancies means we’re intentionally not maximizing revenue, which means a lower return to us and our investors.
So what’s going on?
Well, we bought a bunch of buildings a few years ago in an emerging area we like very much.
So far, the rents in this area are not high enough to justify the costs associated with renovating the buildings, so we’re basically running them as-is while we wait for rents to rise.
When you’re running a building and a tenant vacates, obviously your move is to find another tenant.
But we still intend to renovate these buildings in the next few years, and here’s where the problem comes in.
All of the buildings are rent-controlled. That means, once we put a tenant in a unit, there is no way for us to make them leave, even if we want to renovate the whole building.
So, we’re faced with an annoying catch-22: If we want to maximize revenue, we should tenant the vacant units. But, if we do, it’s likely that we’ll end up having to pay those very same tenants a lot of money to move out within the next few years.
Right now, we’re in the process of doing a cost-benefit analysis to determine which of the units we should go ahead and rent. But, for the time being, we’re sitting there with intentional vacancies in a very tight rental market.
Just another one of the insane consequences of rent control…