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How to Maximize Revenue While Minimizing Vacancy in Real Estate

by Ken Corsini on July 22, 2014 · 6 comments

  
How to Maximize Revenue While Minimizing Vacancy in Real Estate

One of the most important components to owning investment property is pricing your rental appropriately so that you maximize revenue while minimizing vacancy.

Determining what to rent a property for can be somewhat of a science when trying to optimize your ROI. You will want to employ several different techniques and strategies when determining the right amount to charge for rent:

Shop Around

One of the most accurate and easiest ways to figure out what the market will bear in rents is by checking out the area.

This requires a little leg work on your part, but is going to give you the most realistic look at what you are facing. You can often find rental signs in the area posted with rental amounts, number of bedrooms and other details about the property. Calling these landlords and getting info on what they have for rent and what they are charging is a great way to get a feel for market.

The newspaper or online classifieds is another excellent way to check out what is available for rent in that area, Not only do you want to see what others are charging, you want to see how long it stays listed at that price. If properties are renting quickly at certain prices, you know that there may be room to price slightly higher.

Related: The Best (and Worst) US Real Estate Rental Markets in 2014

Talk to a Property Manager

You might consider contacting a local property management company that you know has a large number of properties in your area.

If you don’t want to talk to them, you can always search through available properties on their website. I’ve found that many management companies price their properties at the high end of the market. You can typically use their pricing as a guide with the understanding that you may need to price yours slightly lower to be competitive.

Ask Your Vacating Tenant

While you don’t want to rely on this as a long term determination of rents, nor do you want to use it exclusively when making your decision, asking your vacating tenant whether they believe the property is priced right can be informative at the least. They may have information that could help you in your determination.

Price Slightly Higher

Another strategy is to price your rent slightly higher than what you think the market will bear.

After two weeks or so, you’ll know whether or not your price is realistic. I’ve done this in the past and have sometimes been pleasantly surprised to rent my property at a price higher than anticipated.

However, if after several days there is no response or poor response, drop the price. The right price is typically going to cause multiple potential tenants to seek you out.

Compare Apples to Apples

When comparing the comps on your rental property regarding rental rates, make sure that you are comparing property that really fits.

You don’t want to compare your single family three bedroom rental home to a three bedroom apartment in a nearby complex. This isn’t going to give you an accurate way of discerning appropriate rental rates for your property. Find property that is truly similar to your property if you are going to use it for comparison.

Talk to a Leasing Agent

You might want to take the time to reach out to a leasing agent in the area.

Leasing agents typically have a good handle on rental rates and neighborhood dynamics. You might be surprised what you can learn from someone that has experience leasing in your area.

Related: Why Dripping on Your Customers is a Good Thing

Don’t Forget About Upward Trends

Take the time to consider how long you have been renting the property at the same rate.

If you have had a long term tenant in the property, you may not have adjusted rents along the way. In general, rents have increased over the last several years … even as much as 8% per year in some areas. You may want to simply make this adjustment and see how the rental applications go. Many times it is through trial and error that you hit the right number for tenant applications.

When you are facing a new vacancy you want to prepare well in advance for determining the next rent rate. As soon as you know you are going to have a property become available, start doing your homework to price the rental correctly in the market. Waiting until the tenant is out is not the time to begin your research.

Being as prepared as possible, even in something as simple as rental pricing, is one of the key components to your ultimate success.

How do you price out rent for your unit?

Be sure to leave your comments below!

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{ 6 comments… read them below or add one }

Deborah Burian July 22, 2014 at 7:16 am

All good stuff. I also paid a VA to look at every single craigslist ad in my market for 2-3 months… cost me $50 and because I too had advertised I could look at her accuracy. It created a terrific data base to start from.

Reply

Alex Craig July 22, 2014 at 7:28 am

Evaluate the look of competition too. If your house looks like your grandmothers house that has not been updated in 30 years and the other houses in the areas have nice updates, then you would not be comparing apples to apples on the rent amount either. I am finding simple, cost effective upgrades are pushing my rents higher and getting them rented quicker. The Mom/Pop/Accidental Landlord does not know this–use that to your advantage.

Reply

Thai July 23, 2014 at 7:35 pm

Great advice!

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Eric July 23, 2014 at 8:45 pm

I rarely have a vacancy I cannot fill immediately after the tenant in place moves out. Price right. If you show it to two or three qualified people and it doesn’t rent, lower price.

On any given day, based on your competition, you may be able to charge a different price.

Vacancy is your number one avoidable expense as a landlord, avoid it at all costs!

Reply

Larisa July 25, 2014 at 3:56 pm

Eric, you are right, as usually :-)

Reply

Christopher Leon July 27, 2014 at 9:24 pm

@Ken Corsini
You always have great articles. I love this topic because it is such an art and not a science. We price out our rentals just below market value and rent for 24 months minimum. For example, there is a real nice town where we own some property, just super desirable, the moment something goes up for rent rent in this town, it’s gone in a matter of two weeks (priced right of course) the one bedrooms units in this area can rent for as high as 950 a month, so we rent ours for just under $900 and secure a real strong working professional at that price with a solid credit score. It allows us the ability to raise rents after the 24 months accordingly, but not too much (ya know) and it keeps the tenant in there for a couple more renewals. For the most part, we average tenant occupancy for about 3-4 years per unit. For us, it’s all about the ease of management and not getting top dollar just cause I can. Since the tenant has been there, I have heard from my tenant there maybe twice, possibly three times? We’re fortunate. Thanks for the great post.

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