Overprice Rental Property
"Each week that a 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 30 plus years of 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 know 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 it 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 1 month $160
Annual Net Income: $15,240
By reducing the rental rate by $100 a month you have to increase your annual net cash flow by $570.00
We also find:
1) Renters are not like buyers, they don't typically make an offer on a property and try to negotiate. If the lease rate is what they want to spend, they will look at it. If it's over-priced compared to the others in the area, they won't even look at it.
2) As your property sits empty, the Days on Market (DOM) count on the listing keeps going up. As that number increases the listing gets stale, agents and tenants begin to think there's something wrong with the property.
3) Properties are at a higher risk of potential damage the longer they sit vacantly.
5) Most leasing agents will search for listing based on what their client wants to spend. If your price is too high it won't come up in their search so they won't know to even look at it.
We will perform a Market Analysis and make a recommendation for what your lease rate should be. This is done by comparing properties like yours to other homes that are on the market, those that have just leased and how many days it took for those properties to lease.
Homes that are priced correctly and in good condition, lease quickly to the best tenants. Those that are overpriced or in poor condition, just sit empty. Remember, an A grade tenant won't typically rent a B grade home. You want the best tenant and we want to get you the best tenant.