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Reduce your asking price and make more money!

Monday, February 25, 2013

I am going to tell you something you likely do not want to hear. Reduce your rental asking price and you will make more money. Don’t believe me?


Believe it or not this is almost an absolute fact in the rental business. Being a profitable and successful landlord is all about maintaining occupancy in your home. Vacancy periods can quickly destroy any gains you may have had in the past, as your carrying costs are increased in the form of a mortgage, utilities, leasing fees and regular maintenance of the home. More importantly however, vacant properties generate no revenue.


It boils down to basic economics. Reduce your rental asking price and make more money. By reducing your rental rate, you increase the demand for your property. This in turn results in greater selection of tenants, increased turnaround times, and longer occupancy periods. Why? Let’s take the case of Property A, vs. Property B.


Both properties are marketed on the same day and are identical in every way. (same floor plan, upgrades, neighborhood amenities, location, etc.) The only difference between the two is the asking price. Property A is placed on the market at a rate of $1000 per month and Property B is marketed at $950.


As a prospective tenant, which property are you going to go look at first? If it suits your needs and is basically identical to Property A, why pay more? Property B will consistently be the first seen and leased. This I know is a very basic explanation, so let’s look at the numbers.


Property B. for $950 a month leases first and generates $11400 over the course of one year (January 1 through December 31). At what point will property B generate more in revenue than Property A, over the course of this same year?


            After 2 weeks, Property A will generate $11500.00 (January 15 through December 31)

            After 4 weeks, Property A will generate $11000.00 (February 1 through December 31)


If you were to factor in the carrying costs mentioned above, property B would likely generate more revenue over the course of one year in approximately 2 weeks or less.

Now remember that the idea is to keep the property occupied. So when your $950 rental comes up for renewal your ultimate goal should be to retain the tenant. Look at the market and adjust your rental pricing up enough to remain competitive. You do not want to provide too much incentive for your tenant to begin looking elsewhere.


So why sit, on a property allowing it to be vacant? Be aggressive with your pricing and make more money in the long term. Look at your competition and price your property slightly under that value. At the very least make yourself competitive by matching the prices in the market. Once you have found your tenants, you must then retain those tenants. Trust me, they are easier to retain than they are to replace.


Note to Reluctant or Upside down Landlords;


It is better to supplement a little to the mortgage monthly if necessary, than to be forced to supplement the whole mortgage by requirement. Don’t force yourself into a position where you have to walk away from your home on account of $50 or $100 a month. Keep it occupied, keep it manageable, and keep it generating revenue.

NARPM Atlanta
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