If you borrowed money, you have to meet mortgage or land contract payments each month, whether or not your unit is vacant. If your tenant pays $1,000 a month, a two-month vacancy can kill you. Even at $500 a month, the cost of vacancies rapidly escalates. So what can you do to keep losses to a minimum? Some landlords just ride it out; others say they'd rather collect less from a new tenant just to keep the unit rented.

Is the Unit Overpriced?

You've been running a For Rent ad for over a week and gotten only a few phone calls. No one wants to make an appointment. That should tell you that you're asking too much; callers know they can find a better deal elsewhere. Renters are a cost-conscious group. They would rather have a little disposable income after they've paid rent each month than give their money away to a landlord.

Try reducing your asking price by $25 and running a new ad; if that doesn't work, reduce it again. Not getting as much rent as you'd like might make your budget a little tight, but it's better to have an occupied unit bringing in money regularly than a vacancy draining your projected income.

For example, when the economy is good, you might be able to get a rental rate of $600 a month, but if that's too steep for the current market, you drop the asking price, first by going down $25; if there are no takers, you reduce it another $25. Recognize that in the end you may be collecting only $500 a month in rent just so someone occupies the apartment. Don't gulp! Do the math. If you have a tenant renting at $500 a month, in a two-month period you'll gain $1,000. Your loss will be only $200. But if you're stubborn about sticking to your original asking price, in two months you're down $1,200. Which is the better business decision?

What about the Security Deposit?

You can reduce the security deposit amount, too, but it's not a wise decision. Security deposits are usually one or two months' rent, and it may depend on what's allowed in your state. Going any lower is risky, especially if you should get a problem tenant; some landlords, however, will take the risk in a tight market. You'd be surprised at how quickly the security deposit will evaporate if a problem tenant trashes the apartment, causes extensive damage, or gets behind in rent.

For the same reasons, it's not a good business practice to say a security deposit includes the last month's rent, and in some states it is not legal to do so. If you do include the last month's rent, the tenant won't pay you for that last month. Then if the apartment is trashed or the tenant owes back rent, you'll have to use the courts to recover what's owed. You want to collect as much money as possible in the security deposit just in case you have problems. (See Chapter 15 for more on security deposits.)