Rent is one of the biggest influences when it comes to investment property. It determines your return, whether or not you break even, the longevity of your investment, and it also heavily influences the type of tenant that is attracted to your property.
Maximizing your rent
Oddly enough, the best way to maximize your rent income is not necessarily to charge the highest rent possible. While on the surface, rent income makes up a lot of what an investor sees. Its what is deposited in to their bank account and reflected on their monthly statements, however many of the costs associated with investment property are spread out over time and often seem hidden. This concept, known as the iceberg theory, suggest that most of that you see on the surface is only a small part of what is truly taking place.
Dollar for dollar
Finding the right tenant has an exponential impact on your success as a landlord. When the rent goes up, the amount of people interested in the property goes down. As an expert property manager, my goal is to attract the best possible tenant for your property while avoiding being placed into situation where you want to accept anyone remotely interested in the property. A competitive rent price helps achieve this because it will draw more attention and potential applicants to your investment; the more people who apply, the higher the changes are that you will find an exceptional tenant.
Hiring a property management company can really help you maximize your rental income.
Another added bonus to a competitive rent price is that the added attention will likely result in a faster turn-around in between tenants. Vacant properties are insanely expensive. Each and every day a property site vacant is one more day of lost revenue, paying advertising costs, and maintaining utilities on a vacant unit. These numbers add up quickly and before long, you will have lost more due to the vacancy then you would have if the property were listed more competitively.
People who care
Entitlement is huge in America. Many tenants assume that they are paying rent and so they should have little to no responsibility, especially when it comes to maintenance. Having a home that is priced slightly below average can make it affordable to someone who may not have been able to afford it. While you do need to be cautious to ensure they can afford the property, this can be a valuable motivation for the person renting the home to take care of better than the average person. People tend to work harder when there is a sense of value that they are working for. Being able to lease a property in a slightly better location in a shopping center or a home with a small yard over a condo can make a huge difference. They may take better care of the home meaning less differed maintenance, complete repairs on their own or even take it upon themselves to improve the property.
The long term
Then of course there is the benefit of avoiding vacancies. The longer the tenant stays, the longer you postpone the cost of having a vacancy. Tried and true, creating long term tenant relations is a key focus for all investors and one way to harm this relationship is rent increases. That doesn’t mean you shouldn't increase rent, because you should be able to adjust the rent to market value, but done it moderation. A modest increase of 1-2% is often considered reasonable by most tenants. Whether it’s either commercial or residential, you want to avoid the stigma that my landlord always increases the rent and gives me nothing in return. Skipping a year or two in between rent increases can go a long way in helping the tenant see value in the property, especially if they feel as though they are renting the property at a discounted price.
Be mindful of the rent value for your property. Whether your in Hawaii, Las Vegas, Los Angeles, etc. each unit has a “magic number” where it is priced right to attract well qualified tenants and keep them there for a long time. Don’t be afraid to turn down applicants until you find the right one, but do consider reducing the rent if all you are getting is unqualified applicants.
April 15, 2014