Rents Are Declining
Unlike the previous market correction, rents will start to decrease. In the fourth quarter of 2022, Vegas rent decreased 1%, bringing the average price to $1,420 per month. According to a report from the Nevada State Apartment Association (NVSAA), the price is down from $1,451 in the third quarter and below the national average of $1,620.
According to Michael Petrivelli, director of market analytics with the CoStar group, which compiled the data for NVSAA, the forecast shows rent is likely to continue decreasing another 1% to 1 1/2% through the next six months until summertime.
Construction in the area is building about 9,300 local apartment units, which will expand existing inventory by 5.2% once they’re complete. With evictions still playing out in court, apartment availability could increase further. More here…
Here are 5 reasons why asking above market rent will hurt you.
- Tenant Quality Decreases. This is a numbers game. Because there will be fewer prospects looking at the property, we will get fewer tenants to select from. A smaller selection of prospects translates to fewer choices and lowered standards. In many cases, owners get so desperate for a tenant they will make exceptions like allowing pets, smokers or tenants with marginal credit. Conversely, when there is a choice among tenant prospects, we get to pick and choose better tenants.
- Search Engines Filter And Sort Your Property Out. When tenants search for a rental, they plug in price, bedrooms, bathrooms and location in pretty much that order. This means if your property is priced above market, they don’t even see your property unless there is nothing else available in that area. The chances your property is the only one available for rent in a particular school district are astronomically remote.
- Time is not on an your side. Fewer tenants will be looking at a property priced too high. This means it will take much longer to find a tenant. Every day a property sits vacant costs you money. The more a property is priced over market, the longer it takes. Generally speaking, a property that is listed 5% over market will take 4 weeks longer to find a tenant. If you do the math, there is a good chance your price increase is eaten by vacancy cost.
- Your tenants will not stay long. Typically, the tenant who was willing to pay over market rent came from California where rents are ridiculous. About 2 months into the lease, they will discover they have been taken for a ride and will start looking for another place before their lease expires. This will translate into another few months of vacancy. Tenants who are paying market rent or just below, are less likely to move because it costs a lot of money and is a headache. Tenants paying a lot less than market rent will stay for years!
- Vacant properties are prone to vandalism. Tweakers are always looking out for vacant properties and tell tale signs of a property that has not been occupied in some time. The cost of a broken window, door or stolen appliances costs a lot of money. Not to mention the mental burden these vacant properties create. About 25% of properties that are vacant for more than 30 days are vandalized.
We are religious when it comes to measuring performance. We video all our properties so we can get an accurate measure of traffic. Video views is a very good indicator of a property priced correctly. Properties getting less than 6 views a week are overpriced. A property getting over 6 views a day will be rented within a week. In the case study below, our investor insisted on pricing the property $200 over market. A month later, he started to understand the downside of an overpriced property and lowered the price to about $100 over market. Still nothing. At week 7, we were priced at market and placed a tenant right away. In the meantime, his unit got assaulted by a homeless person and he lost 2 months of revenue.
Will I get a better tenant if I charge more than market rent? NO! NO! NO! There is no correlation between the amount of rent and tenant quality. Tenant quality is a function of background checks. Not rent.
How do you know if a property is priced correctly? We start by doing market comparisons from actual MLS data – not what Zillow thinks. We then begin measuring the amount of traffic we get from the MLS, electronic guest cards and video views. Generally, a property gets rented by about the 40 video views point. We update you every week and provide you with feedback.
What if your phones are blowing up and you are getting a ton of inquiries? If we are getting too much traffic, we will let you know and make a suggested increase. This very rarely happens and it if does, it’s usually one of our cheap multi family properties near Fremont street.
About how long does it take to find tenant for a property priced correctly? Properties priced at market will take about 2 weeks to find a tenant IF the property is clean AND we are not in the dead zone of November and December.
What do we do if the property is not rented by September 1st? Panic. Seriously. Properties that are on the market past September 1st will be vacant for at least 4 weeks longer than usual unless you drop the price 5% lower than market. NOTE: We can mitigate this lower income by making a shorter lease. This enables us to increase or review the lease during the summer when it’s easier to find tenants.
Do you care what price I decide to list my property? Nope. We don’t care. It’s your property and if you decide to let your property sit longer so you can get the price you want, we are ok with that.
Can I change my mind and adjust the price at any time? Yes!! We don’t need anything fancy. All we need is a phone call, text or email telling us what you want it changed to.