Overpriced Rental Property
"Each week that property sits vacant, there is a 2% loss of the total potential annual rental income. You can write off expenses; you can't write off lost rent. Price your property properly and start the revenue stream." Michael Francis
Our 31 plus years of residential property management experience has consistently shown us that testing the waters with a high price is a bad idea. It is better to slightly underprice a property and rent it more quickly than to try and maximize the rental income but have it take longer to rent.
Example #1: Your goal is to maximize your rental income, you think you can get $1500/month for rent. The property is rented in 60 days.
Rental Rate: $1,500/month
Time Vacant: 2 months
Annual income: $1,500/month x 10 months: $15,000
Expenses: Water, electric, landscaping for 2 months $330 (or more in the summer)
Annual Net Income: $14,670
Example #2: Your goal is to rent the property quickly, so you sacrifice $100/month in rent and advertise the property at $1400/month. The lower price increases the demand for the property, and is rented in 30 days:
Rental Rate: $1,400/month
Time Vacant: 1 month
Annual income: $1,400/month x 11 months $15,400
Expenses: Water, electric, landscaping for one month $160
Annual Net Income: $15,240
By reducing the rental rate $100* a month you have to increase your annual net cash flow by $570.00
Our leasing experience has shown:
- Renters are not buyers, what this means is they don't make an offer on a property and try to negotiate. If the lease rate is what they want to spend, they will look at your property. If the property is over-priced compared to the others in the area that they are looking at, they won't look at your property.
- As a property sits empty, the Days on Market (DOM) count on the listing in the Multiple Listing Service (MLS) keeps going up. As that number increases the listing gets stale, agents and tenants begin to think there's something wrong with the property.
- A property that is sitting vacant is at a higher risk for the potential of unintended damage (water leak, vandalism,...). In some cases, improperly insured properties may not be covered by your insurance policy after a certain number of days vacant. Call your insurance agent to discuss if you are adequately insured.
- Most leasing agents will search for lease listings based on what their client wants to spend. If your price is too high, the property won't come up in their search and they won't know to look at it. The agent also knows what an average rent for the area is, and if it's overpriced it won't get shown.
We perform a Market Analysis to set the lease rate based on: 1) what's currently for lease around your property, 2) how your property looks compared to other properties, 3) the number of properties on the market and their Days on Market and 4) make a recommendation for what your lease rate should be. We want you to be successful and get the best tenant and the best rent as quickly as possible.
Homes that are priced correctly and are in good condition, lease quickly to the best tenants. Those that are overpriced or in poor condition will sit empty. Remember, an A grade tenant won't typically rent a B grade or overpriced home. We both want the best tenant to lease your property!
* $100 is for example purposes. Sometimes a simple $75 to $50 adjustment is all it takes, especially if we're going from something like $1,525.00 to $1,495.00. This adjustment opens your property to someone who doesn't want to spend more than $1,500 a month who otherwise wouldn't have seen your property.