Your rental property is a business!This may not be the most profound statement you have heard all day, but it is nevertheless critical to your success as a residential rental property owner. And that means you must be vigilant to manage your business in the pursuit of cash-on-cash return plus increased asset value of your investment. As a business, your “inventory” is floor space. You sell it via rent payments. The balancing act is to periodically determine rents that are fair to both tenants and to you – the investor. In this article, I offer a checklist for success in evaluating the factors to be considered. Notably, your rental pricing considerations and analysis are essentially the same in deciding a first-year rent as well as increases over time.
Do Your HomeworkEvaluate the current rental market in your area. You can research rental comps and trends through a variety of resources. Here are three to get started. You’ll discover others. • Rent-o-Meter • Bureau of Labor Statistics • Craig's List
Evaluate Your ResearchSome questions to ask: • What are current vacancy rates and demand for rental units? • How do your current rents compare to similar properties? • If your rents are generally higher, does your property include amenities that justify the difference?
Seasonal Trends and Pricing StrategiesThe law of supply and demand was not formulated based on residential real estate. That said it is very much a reality when it comes to pricing of rental units … whether in multi-family residences or single-family homes. Renters drive the demand side of the equation. Landlords create the supply. Seasonally each of these elements is affected and here’s why. Renters’ seasonal moving preference is summer. That time of year for moves is motivated by three practical considerations: • The kids are out of school. That means incentive to avoid switching schools or school districts mid-academic year. • Weather is often a factor. Depending on the location, inclement weather may result in cancellations or delays of moves. That’s true in areas with severe climates, but also has impact in locations with less extreme weather … for example a rainy season. • Job changes are frequent in the fall of the year. If the new job requires a move, doing so before the start-date is imperative. In contrast, the final quarter of the year has as its hallmark the fewest moves. In addition to reasons listed above, that time of year tends to distract most of us with the expenses of getting kids back to school plus the anticipated financial and time commitments of the upcoming holiday season. So tenants exhibit seasonal trends in both their search for rentals as well as the physical move. Here’s a graphic representation of both these activities. As presented above, searches begin to accelerate following the Holidays and reach their crescendo in July. Somewhat in predictable lockstep, moves begin to increase in early spring and fast-track to their peak in August. Alert Landlords understand this seasonal fluctuation in demand on the part of prospective tenants. Since it is an historical fact of life, residential rental investors need to recognize this phenomenon and formulate marketing and pricing strategies to successfully respond to the seasonal preferences of renters. Dictated by the law of supply and demand, rent prices tend to decrease as demand softens in the last quarter of the year. As a landlord, you may choose to make special offers regarding security deposits, upgrades or monthly rent. Tip to Landlords: When making concessions to attract renters in the “off-season”, it pays to consider aligning the lease expiry date to get back on track with an annual lease that corresponds to peak moving months. For example, a new tenant in November may be presented with a lease that is up in April. Note: Rental units in a growth market may not be subject to as broad swings in pricing as those in a more stable community. Growth markets usually are accompanied by increased housing demand as residents flock to an area with more to offer in jobs and quality of lifestyle.
RAISE THE ROOF … definition : to make a lot of noise by playing music, celebrating, shouting, etc. The crowd raised the roof when the winning goal was scored. : Your tenant(s) raised the roof when you raised the rent.