You see other Landlords getting the ‘big bucks’. So you start with a price too high to begin with. Remember, every place you see advertised is vacant, by definition. No one advertises places that are full. Often, higher rents mean lower profitability. And profitability is what you should be striving for, not higher rents. In a perfect world, they would be in sync, but in today’s rental market, they may not be. This is especially true if you get a bad tenant.
When you raise rents, you have to determine the market rate of your unit, and what it costs to replace your tenant, compared to what you are charging now. What are your turnover costs going to be when they move out? How long will you be vacant while you wait for a new tenant?
I find it better to be slightly underpriced, than right at market price. At market price, by definition, your tenants can get another place for the same cost. Sure, a better place will cost more, but your tenant gets more amenities. I can remember my grandfather having a duplex. His tenants had been there 20+ years. The reason was they could not find a better value anywhere else. His turnover cots were $0, for over 20 years. No showings, no painting, no new carpet until it was actually worn out, no new appliances because they got too dirty for a new tenant, no evictions, no court costs, etc.
By having great value, you keep tenants year after year. Turnover costs are reduced to next to nothing. You get referrals when you have a vacancy. You have a waiting list of tenants. Your will fill vacancies faster. Your tenants actually appreciate you. Remember, tenant turnover costs are your number one avoidable expense as a Landlord.
Many landlords chase for new tenants every year because they have poor customer service skills, or think they have to show ‘tough love’ to the tenants, or they do not know the real market value of their unit. If you went to a restaurant and they showed you this same attitude when you found a hair in your soup, you would never go back. If they charged extra because you dropped your fork on the ground, you would think they are crazy. If they didn’t clean the table before you arrived, because it was ‘clean enough’, you would probably freak out. Yet many landlords think this same attitude is OK in a rental property.
If you think you can make more money by raising the rent, go for it. But be prepared for an apartment turnover. And unless you are skilled at screening tenants, be prepared for a bad tenant that may make your life miserable, and cause your other tenants to move out.
What is the Right Price for your Rental? It is the price for getting the maximum return, for a quality product,
Be sure to look at my “Coming Attractions” page and see what I have in store for upcoming articles.
Have you ever lowered your rent? What is the longest you ave been vacant?