Correctly pricing your rent is one of the most important parts of leasing and managing rental property. To successfully rent out your property, don't set it too high or too low. We'll talk about the pitfalls of setting it too high in today's blog. In a future blog, we'll discuss the problems you encounter when you set it too low.
Rental Price is based on the Market
First, understand that the market determines the rental amount. Monthly expenses don't have anything to do with it. If you were to refinance your property and your monthly expenses were suddenly lower, would you pass those savings onto your tenant? Most likely, No. You wouldn't. So try and keep in mind that the rent you get has nothing to do with what the overhead of a property may be. The market always dictates the price.
Longer Vacancy Periods
If you set the desired rent too high, it can and will lead to longer vacancy periods. Here's an example. If the market rent is $2,000, but you're holding out for $2,100, it might take an extra 30 days to find a tenant willing to pay $2,100. At the end of 12 months, with a $2,000 rental amount, you'd earn $24,000. But, you'd only have $23,100 with a $2,100 rental price because you lost a month of rent waiting for your home to be leased. A year later, you're $900 behind because you were chasing an extra $100 per month. This tactic is like playing a losing game.
Sometimes landlords will elect to set asking rent and tell prospective tenants that is negotiable. In the decade, I have leased and managed rental property in Long Beach, I can tell you this not the right way to go about it. It puts you in a weak position, and there's no sense of urgency on the part of the tenant. If you start with a good number, tenants won't feel the need to negotiate and creates demand.
Tenants Know the Market
Existing tenants will move if they sense you're asking too much in rent. If they are paying over market for rent, they will begin to look for other options. Turnover is expensive, and you want to avoid it.
Additionally, you are more likely to attract undesirable tenants when your rent is too high. The tenants that have been previously turned down by other landlords will be willing to pay more for your property. If you're asking $2,200 and the market is at $2,000, the person willing to pay more for your property is probably a higher than average risk as a tenant. That's not what you want.
Here's my advice. If the market says the rent is $2,000, try pricing your home at $1,995. It will rent faster, you'll have fewer turnovers, and your tenants will be of higher quality. Ultimately, you'll be happier.
Next time, we'll talk about the danger of letting your rent go too low. If you have any questions about pricing your property or any other Long Beach property management related matter and the surrounding areas, please contact us at the Mike Dunfee Group. We'd love to be your real estate resource.