The number one mistake owners make in our business is asking for higher than market rent.
Here are 5 reasons why asking above market rent will hurt you during Covid.
- 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.
- 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. It is super important to get only tenants who are in essential professions.
- 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 12 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.
The chart below demonstrates an extreme comparison between 2 properties. Crestline was priced at market while Radwick was priced 15% over market.
- Crestline Vacancy Cost = $560 ($1200 market rent / 14 days)
- Radwick Vacancy Cost = $8000 ($2k market rent x 4 months)
Had the Radwick owner listened to our advice, the owner would have earned at least $6k more for that year. They were super lucky some tweaker didn’t attack it or it would have been even more painful.
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.