The Real Estate Investing Authority®

How Flexible Should You Be When It Comes To Decreasing Your Rental Asking Price?

GETTING THE PRICING RIGHT SETS THE TONE FOR A SUCCESSFUL RENTAL EXPERIENCE

There are natural ebbs and flows to all markets and rental properties are certainly no different. As housing prices skyrocketed and then stayed high despite elevated interest rates, owners who were brave enough to buy needed to increase their rent prices to help cover their new mortgage. At the same, insurance costs have ballooned, as have the costs for maintenance, garbage removal, electricity, heating…pretty much all the expenses that eat up the majority of the rent taken in by property owners.

If you’re a rental property owner with a vacancy, how flexible should you be with your price? How large of a role should your mortgage and other expenses play in the price you set? Is it worth pricing high and waiting longer to find a tenant? And how can you best ensure you’re getting this critical step of the process right?

 

LEARN MORE: WHO’S THE BEST PERSON TO LEASE YOUR RENTAL PROPERTY FOR YOU?

 

SETTING YOUR PRICE 

In reality, your mortgage and other costs of owning an investment property SHOULD PLAY NO BEARING in setting your rental price. Those things are very important BUT they should be fully considered when deciding whether or not to buy the property…well before this point in your journey. If you purchased a rental property and can’t make the numbers work without tapping as much out of the market as possible, you’ve taken a terribly risky first step.

Ultimately, careful analysis of your local market will give you the correct range where your pricing should fall. Compare the amenities of your property to those that are similar and adjust accordingly.

 

LEARN MORE: DON’T BE AFRAID TO RAISE YOUR RENTS

 

HOW PATIENT SHOULD YOU BE?

If your price is wrong, you should be well aware of it within a week or two. If you’re not getting any inquiries, you’re not attracting the fish you’re looking for and need to cast your line elsewhere. This means you need to decrease your price. This is very often a difficult decision for inexperienced owners, but it shouldn’t be. Let’s dive into the numbers a bit to make it more clear:

You have a rental and you’re asking for $3000 but not many people are interested. It’s been two weeks and someone suggested you reduce your price to $2750 but you’re hesitant. To play it out, reducing to $2750 gets you a tenant within 2 weeks and in total it took you 30 days to find a tenant, but you had to settle for $250 less than you would have liked. You’ll end up with $33,000 in rent after 12 months. On the flip side, you stayed at $3000 but it took you a full extra 45 days to find a tenant. You’re thrilled that your patience paid off. To use the same 12 month table, you’re renting at $3000 but with just 11 months (since it took you 30 days longer) for a total yearly rent of…$33,000. But what if it took an extra month? What if you’d reduced it by just $150 instead of $250?

The point of the exercise is to show that reducing your price, more often than not, is not going to hurt you as much as it feels it might. With the money you’re taking out of the rent by decreasing the price, you’re buying the likelihood of placing a tenant sooner. Run through the math to give yourself the best vision of what your guardrails might be. Don’t forget to factor in how long you expect a tenant to stick around. If your tenant is likely to move on or the unit is not available beyond a year, decreasing more aggressively makes sense. If you anticipate or have the goal of finding a tenant that will be around for many years, patience is likely best.

 

LEARN MORE: HOW BEST TO NAVIGATE THIS MARKET IF YOU HAVE SINGLE FAMILY RENTALS

 

HOW CAN YOU MAKE SURE YOU GET IT RIGHT?

The best way to ensure you’re asking the right rental price is to work with a professional. No one knows the rental market and the likely expenses that you’ll accrue over the life or your investment property better than a reputable property manager. Reach out for a comparative analysis of the market and don’t be shy about asking questions. At Nexus Property Management®, we’re happy to discuss your property and your best moves with you, whether you’re a client or not.

 

LEARN MORE: WHAT’S THE RIGHT PRICE FOR MY RENTAL PROPERTY?

 

Nexus has been managing multi-family and single family properties since 2013. We continue to craft and perfect our best practices around win-win solutions for clients and tenants alike. If you’re interested in learning more about Nexus’ services and you're in one of our many territories, contact any of our teams across Arizona, Connecticut, Massachusetts, and Rhode Island.

 

 

 

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Mick Lefort is the General Manager of Nexus' New Haven County Franchise Office and the Vice President of Operations for Nexus Property Management®, a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.

 

 

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