One of the most effective ways to build semi-passive income is to own your primary residence, live in it for several years, then rent it out and purchase a nicer property. If you're aiming to retire early, over a 20-year career, you could easily build a rental property portfolio consisting of 3-5 units. This has been an integral part of my early retirement plan since 1999.
Not only does this strategy generate more semi-passive income, but it also allows you to climb the property ladder and live in a nicer home over time. However, it's crucial to do so in a responsible way, as opposed to taking all the equity in your multiple rental properties and buying one premium place.
Throughout my transitions, moving from buying a new home to renting out my old one has consistently resulted in finding tenants within one month. However, this time it took four months, attributed to bad timing, bad planning, and indifference.
For those of you who want to own rental properties, let me share the best and worst times to find renters. I've been a landlord since 2005 and want to invest in more passive real estate investments as I get older.
The Worst Time Of The Year To Find Renters: October, November, December
The most challenging period to secure tenants falls in the fourth quarter of the year: October, November, and December. This difficulty is amplified when attempting to rent out a single-family house to families with children.
The primary reason behind the daunting task of finding renters during these months is that the majority of people don’t want to move if they don’t have to. School typically commences in August or September, necessitating parents and students to secure housing well before these months.
Graduations for students commonly occur in May or June, with job offers typically materializing in July or August. Consequently, by the time the fourth quarter arrives, a significant portion of potential renters will have already found housing.
If you are in the process of searching for quality renters during the fourth quarter, you may either need to extend your waiting period or consider lowering your asking price. For renters seeking a place in the fourth quarter, there may be an opportunity to negotiate a better deal, but the available inventory of rental properties will likely be more limited.
For those looking to buy, the best time of the year to buy property is also during the fourth quarter. Sellers listing during this time are generally more motivated.
The Best Time Of The Year To Find Renters: April, May, June
The optimal period for securing tenants is during April, May, and June. The second quarter of the year witnesses heightened planning and movement as a result of the conclusion of the school year and the onset of summer vacation.
Families with children, particularly those aiming to minimize disruptions during the school year, prefer to locate a rental property and sign a lease that commences the month school concludes. This strategic timing allows families to utilize the summer for the relocation process, including moving, unpacking, furnishing, and decorating, before the commencement of the new school year in August or September.
In contrast, new college graduates seeking housing do not face the same level of urgency, but it’s still there. They may choose to reside with their parents for the summer before embarking on their work journey, delaying their search for rental properties until July or August.
Alternatively, they might opt for a final summer vacation to explore the world, akin to my experience with my 1999 trip to Japan and Taiwan before commencing my role at Goldman in August 1999.
The Second Best Time To Find Renters: January, February, March
The second-best time to find renters falls within January, February, and March, the first quarter of the year. The onset of the new year frequently triggers fresh beginnings for individuals, as some may aspire to secure new jobs, relocate to different cities, switch neighborhoods, save money, or undergo changes in their relationships.
While the winter holidays typically witness fewer people moving, the period following these holidays often sparks a renewed motivation to enhance one's life. My new tenants were all residents of sleepy Santa Clara county, situated approximately one hour south of San Francisco. Seeking a more dynamic lifestyle in their twenties, they were eager to immerse themselves in the excitement of big city living.
Among the three months of the first quarter, March proves to be more conducive to finding tenants compared to February, with January being the most challenging of the three. The closer you get to the second quarter, the ideal time to find renters, the better.
The Challenge Rental Property Owners Face
Each month that a rental property remains unoccupied represents a loss of potential income. Even if the property is fully paid off, there are ongoing property taxes to cover. Consequently, it is in the landlord's best interest to secure the most suitable tenants within the shortest timeframe.
Simultaneously, the ramifications of having a problematic tenant can far outweigh the costs associated with keeping a rental property vacant until an ideal tenant is found. It is crucial to meticulously screen each tenant, engage in discussions with their previous landlords, obtain evidence of employment and financial stability, and establish a robust rental lease agreement.
If you discover your tenants want to move out at the end of the third quarter or during the fourth quarter, the worst times to find new renters, there may be a strategic need to encourage them to stay until at least the new year. Incentivizing such an arrangement can be beneficial for both parties involved.
The Pleasure Of An Unoccupied Rental Property
While the search for suitable tenants proved challenging during October, November, and December, I found solace in having an empty rental house. This period allowed me to make necessary improvements, including touching up interior and exterior walls, and having my handyman replace some rotted deck planks.
October was an exceptionally busy month, as my family had just moved into our new house. Unpacking, setting up systems (wifi, solar, cable, ecology, etc.), buying furniture, and decorating consumed our time. Having the empty rental property provided the opportunity to enhance its condition at a relaxed pace while focusing on our new home.
I even transformed our old rental property into a wellness center for a day, offering a welcome respite to soothe the nerves and rejuvenate the mind after seven years of raising young children.
After three months of not renting out the property, a sense of economic urgency prompted me to reconsider its status. Although I had contemplated keeping the house vacant for personal retreats or accommodating extended family members, the cost was too much to bear.
I ultimately decided against selling given I anticipate another boom in San Francisco real estate prices due to the growth of artificial intelligence. Consequently, my best option was to rent it out.
How We Minimized Disruption For Our Kids With The Off-Cycle Move
Despite stating that October, November, and December are the least favorable months for finding renters we decided to move in October. Our kids had already started school. Here's how we managed to minimize disruptions.
Our new house is merely 0.5 miles away from the old one, ensuring that the commute to school remains virtually the same.
We decided to move on a Friday morning after I dropped both kids to school. We then arranged the movers from 9 am – 4 pm. By the time I brought the kids home, our belongings were all transferred to the new house.
Crucially, our kids were familiar with the new house, having visited it at least 15 times over an 18-month period before we purchased it. Delaying the close of escrow also gave us more time to prepare. We toured the house as a family in May 2022 when it first hit the market. This gave ample time for them to explore both the interior and exterior, accumulating at least ten hours of familiarity before the move.
In preparation for the move, we talked to our kids about where they would like to sleep and how they envisioned arranging the furniture. Additionally, my wife dedicated time to decorating their new rooms with their old wall decorations, making their rooms feel like home.
The 18-month duration it took for us to finalize the house purchase contributed significantly to our comfort level when we finally made the move. By then, we were all mentally prepared.
A Natural Return To The Optimal Rental Cycle
While the worst months may pose challenges in finding tenants, there's an opportunity to naturally revert to a cycle of securing good tenants during the better or best months.
For instance, if you faced difficulty finding tenants in October, November, December, and January but eventually succeeded in February, you're now operating on a February-to-February cycle, given the typical one-year lease followed by a month-to-month arrangement. You likely no longer need to find tenants during the fourth quarter again.
The likelihood of your tenants moving out precisely a year later is also not guaranteed. In reality, they might choose to relocate in April, May, or June—the prime time for tenant searches, as it aligns with when most people tend to move. In essence, once you have tenants, you might naturally synchronize with the best cycle for finding new tenants.
Human behavior often follows patterns, akin to how people tend to commute between 8 am and 10 am, leading to intense rush hour traffic. Similarly, there's a tendency for people to eat lunch between 12 noon and 1 pm, causing lengthy lines.
Adjusting these routines by just 30 minutes could save considerable time, but often, people are resistant to change even when it could enhance their situation.
Should Have Planned Better To Get Tenants
I didn't anticipate that it would take four months for me to secure new renters. My timing to find new tenants, along with my overall sense of urgency, was off. During the beginning, maintaining stability was priority over cash flow.
Moreover, the more expensive a house is to rent out, the more challenging it can be to find tenants who can afford to pay six figures in rent. The “sales cycle” tends to be longer as a result.
As you age and, hopefully, accumulate wealth, there might be a tendency to become less proactive in finding new tenants. In my 30s, new tenants would often start the same week the old ones moved out. Today, not as much.
No More Physical Rental Properties After This
At this stage in my life, I want to invest in more private real estate funds with my incremental cash flow. However, I find myself managing yet another rental property because I couldn't resist buying the nicest property within my means while my kids still lived at home.
While owning rental properties is one of the best paths to financial independence, being a successful landlord requires careful planning and effort. There may be fortunate stretches of not hearing from tenants, but these peaceful periods inevitably won't last.
Best of luck in finding tenants for your rentals! I hope you learn from my experience and boost your rental income over time.
Reader Questions And Recommendations
When do you think is the best time to find tenants? Have you purposefully forgone rental income before in hopes of finding better tenants? If so, how did you decide on when was the right time to take action?
If you're looking to own rental properties without the hassle of being a landlord, check out Fundrise. Fundrise primarily invests in residential and industrial properties in the Sunbelt region where yields are higher and valuations are lower. Overall, its private funds manage over $3.5 billion in equity for over 500,000 investors.
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Hi Sam! I wanted to mention that during our working lives, we changed locations twice in the 4th quarter of the year. Both times we moved cities at least a few hours away. Both times, we were able to work out rental agreements with private landlords, where we would pay a little above market rent for a short term lease (we were looking to buy a house both times). We did a lease for Nov/Dec to March and then the landlords let us go month to month.
This arrangement benefitted both the landlords and us. The landlords had someone in the homes over the winter. They collected over market rent. We moved out at a more advantageous time for them to find new tenants. We had enough from selling our homes that we could pay first and last months’ plus current month rent. It was good for us b/c we had all of our belongings with us and didn’t have to pay for storage. We also were able to take advantage both times of the spring home buying season when more homes are available to buy. We kept in close contact with our landlords as we found something to buy.
The only bad thing for us, was that we had to move twice, but the big moves were paid by my spouse’s company. We just had to pay for the local move. Living out of boxes for 4-5 mos was hard, but the end result was worth it both times. I hope it was worth it for the landlords too. I thought you might be interested in our experience and it might help you or your readers who are landlords sometime.
Good thought and thanks for sharing. Something to think about. I’m shooting for one move and LT tenants to try and simplify life as much as possible. But good to know.
Moving is a real PITA! I’m looking forward to not moving again for at least 10 more years.
“visited it at least 15 times over an 18-month period“
Why in the world so many times?
First visits, follow on visits, inspection contingency visits, final walk through, and visits after close. They add up.
I agree with your ranking of best to worst months to find tenants. I had tenants at one of our Seattle properties leave 2/1 with a 2 month lease break fee and, although I could have rented the property in Feb or March, decided to wait until April. Actually, if my wife and I weren’t living in SoCal for a couple months, I would have considered renting the property sooner w/ a 13 or 14 month lease to get the renewal back to the Apr-June window, but that would still have been at winter rates & adds complication to finding a good tenant, so meh.
Also, as you noted above, after more than a decade as a landlord of 3 properties, I’m now more likely to occasionally give up a little cash for big picture convenience. I’m also using the window to remotely manage a bit of cleanup work on the property via one of our daughters who is helping while we travel. She did a great job managing the move-out walkthrough for us and handling other details and we’re looking forward to her taking on more of the rental management for us in the next few years. Sam, perhaps your kids will do the same in 10-15 yrs. :-)
I plan on it! A goal every property investor should have is to own at least one rental per kid. This way, they’ll have something to do or somewhere to live if they get shut out from the labor market. That’s great your daughter helped out! What’s she planning to do for work?
During difficult tenant times have to tell ourselves we are managing our rental properties not only for our retirement safety, but also for our children as a hedge against this brutally competitive world. With AI as well, phew, things gonna get tougher!
The lack of enthusiasm as we age and get wealthier is a real probably for hustle and wealth building. The phenomena is a clear reason why we cannot spoil our kids and why companies like to hire younger people.
True. I’m downshifting my W2 income & buying time with the W2 income I would have collected if I kept grinding. At least I think I am…as you’ve noted in other posts, it’s surprisingly difficult to walk away from big paychecks and start thinking more about spending vs. saving even if you know you’re burned out on your former/current career. Doesn’t make it easier when former associates are still going hard & offering jobs.
To answer your question, the daughter helping us with our properties while we travel is in the property mgmt business and is better at it than we are. She’s been too busy w/ our grandson and job to take on our portfolio, but she’d like to take it in as a side gig ASAP via her own company, which we’ll support when she’s ready. We’re in our 50s and she is early 30s. And yes, it’s nice to know that if economic shitake hits the fan as the robot overlords take the planet away from the pugilistic biped meatsacks, both daughters & families have paid off homes to live in, including the home they grew up in.
To have grandchildren in your 50s is a blessing! Congrats!
The one more year syndrome really is tough. Here’s how I was able to break out of it:
https://www.financialsamurai.com/overcoming-the-one-more-year-syndrome/
Good reminder – thanks!
Sam – As always, I enjoyed the article. The one thing I cannot understand is your aversion to property management. This is not to attack you, I’m just looking to being enlightened. I have a handful of properties and over the years I have moved them all to property management. I can write off the expense on my taxes, but that aside I have to do NOTHING!!! Moreover, I can’t understand why people sell properties. I do get that someone without kids just wants to “cash out” at some point but to give up cashflow to pay a large tax bill just does not make sense to me. Would love to hear your thoughts on this.
I have used professional property management and my experience is mediocre. No one cares for your property as much as you do, even though it is the job of the property manager to care.
Have you really had to do nothing, like approve fixes, find tenants, deal with bad tenants etc? If you’re really doing nothing, that’s great. I’ve always had the belief that nobody cares more about your tenants than you.
Because I’m a semi-retiree, I have time to attend to my rental properties, all but one of which are local. I have a handyman I trust and like to do things myself to stay active. But I also like to save one month’s rent as the expense to pay a property management company.
I use a property manager for my vacation property in Lake Tahoe and they aren’t great, but good enough. Lot’s of personnel turnover.
What does your property management cost?
I truly do nothing. They take half of the first months rent if they need to place a new tenant and charge 7% of the monthly rent. If I had to deal with tenants , approve fixes etc. then I would be paying for nothing. They also do a great job not trying to squeeze every penny out of rent rather they find people who want to be around for years minimizing turnover. I do agree nobody cares about your money as much as you do, however I am paying for a service and the company providing the service delivers on their side of the transaction. There are also companies that will place tenants for you and then you are not stuck with the monthly charge. I always found the tenant placement to be the least enjoyable aspect of SFH rentals.
Good stuff. How many rentals do they manage for you?
Let’s see, $4,500 + $7,000 = $11,500 a year I’d have to pay for one rental in property management fees. Hmm, at this moment, I’m unwilling to pay that price. If I move overseas or to a different state, then maybe.
Is that 7% for all 12 months or 11 months after they place tenant and take half?
Sam, I also use property management and do nothing. They take 8% of the rent and take care of everything. I got rent deposit to my account monthly and that’s about it. I never hear from them or the tenant. I took the time to find a property management comp that has excellent review and they try hard to maintain their reputation.
I sold a rental so we could get a down payment on our house. Honestly, I regret selling it and probably could have just had a lower down payment and been fine. The tax bill is a bitter pill to swallow if you don’t 1031.
Makes a lot of sense. Q4 is definitely a crazy time for most people with the holidays, traveling, and rounding out the year at work. So I would agree that not many people want to relocate during those months. Q1 seems like a good time since the start of a new year does prompt positive change and new beginnings. But yeah for those people with kids, summer makes the most sense especially if they’re changing school districts. Some businesses are slower during the summer months too which can make the moving process slightly less stressful for working adults who are relocating.
We have a rental going up today in Tracy. Timing seems decent we will see. If you found the right tenants the wait was worth it. Took 2 years to remove another tenant. Ca doesn’t make it easy.
Wow, 2 years is a long time! What happened and did the tenant honor the rental lease agreement and at least pay each month? I’m assuming no.
The timing sounds about right. When I renew the lease with a new tenant, I try to extend the lease period to end in spring. That’s the best time for a tenant to leave. Usually, they don’t have any problem with that. Good job finding a tenant for your old house. I think 4 months is very reasonable at that price range.