How Asking for Less Can Get You More for Your Rental Property
Everyone knows the best way to attract sharks is by releasing blood into the water. A similar philosophy rings true in the real estate world. If you want to start a feeding frenzy over your vacant rental property, you must tell tenants that a delicious opportunity is on the horizon.
There are countless ways to put that proverbial blood in the water, and I’m here to present one that may seem a little crazy at first: Ask for less than market value.
As an investor, that’s probably the last thing you want to do. If homes that are identical to yours are renting for $1,200 per month, why should you list yours for $1,100?
Not enough people realize that pricing a property for rent is a completely different ballgame than pricing a property for sale. If you think they’re similar, you might as well be comparing sharks to minnows.
The Cost of Vacancy
When selling a house, you get to keep a roof over your head while you wait for the right buyer to come along and pay market value for the property.
When it comes to rental properties, however, time is of the essence. Each month a house sits empty represents a month of lost revenue. Making matters worse, the longer it’s on the market, the less appealing it looks to tenants. All the good stuff gets scooped up quickly, so if Zillow says your property has been listed for 150 days, people will assume it’s in poor condition, rat-infested, or haunted.
In all likelihood, as time goes by, you’ll find yourself whittling away at the rent until someone is finally willing to sign on the dotted line. By then, you’ve missed out on several thousand dollars, and your new tenant is likely paying less than market value for the home anyway.
That’s the opposite of savvy investing.
Profit From Low Prices
One way to guarantee a quick fill is to underprice your property just a little. If you play your cards right, you could actually end up getting more than market value for it. I’ve seen this happen firsthand.
My company recently listed a rental property at a price point below market value — and after just 24 hours, we had a whopping 90 showings booked! With those numbers, we were able to be highly selective. We eliminated every person with a credit score lower than 720, demanded a month-and-a-half security deposit, and insisted on an immediate move-in date.
Even with these requirements, the remaining candidates were so eager to get into the home that they actually bid up the rent price. In the end, we quickly filled the home with a great tenant who had great credit — and he paid more than we had initially asked.
I understand if this approach sounds a little risky, so here are some tips that will help ensure the risk pays off:
1. Chop the right amount.
Pricing your $1,000 property at $999 is like putting a drop of blood in the Atlantic Ocean and expecting 200 hammerheads to swim to your boat. Conversely, pricing that property at $500 would just look fishy. In my experience, I’ve found that 5 percent below market value is the sweet spot that sparks a predatory response in prospective tenants.
2. Prepare the waters.
Did you know great white sharks can sense blood in the water from up to three miles away? Along those lines, three weeks before listing the property, post a “coming soon” sign in the front yard. Also, create profiles on MLS.com and Zillow. Market the opportunity in advance, and build as much hype as you can.
In your listings, accompany your amazing price with stunning photos of the property. Don’t use your iPhone — use a real camera. And if you don’t have Photoshop skills, hire a person or property management company who knows how to edit pictures and digitally stage a home. Staged homes get filled faster than those that aren’t staged, and people tend to pay more for them.
During this pre-marketing phase, eager tenants will reach out to you and express their interest; this gives you an opportunity to assemble a list of engaged prospects. Line up as many showings as you can for day one, and perhaps you’ll have a contract signed by dinnertime.
3. Be responsive, and express urgency.
You (or someone on your team) need to be available to field every call, email, text, or smoke signal sent regarding the property. Swiftly respond to each inquiry, and go out of your way to make it seem as if the property is on the verge of being rented at any moment. Tell them, “Wow! You’re the 50th person to call about this home today! You better come check it out right away!” Don’t make it up; if the home is priced and marketed correctly, you are simply sharing facts.
Your responsiveness and urgent tone will help spark a highly favorable negotiation process. The people who want to jump to the front of the line won’t hesitate to offer you more money, sign a long-term lease, or do whatever it takes to gain the privilege of living in your lovely property.
Resist the urge to set a high price for your rental with hopes of reaping above-market returns. That approach rarely pays off. You’ll end up cheating yourself out of thousands of dollars.
Instead, underprice your home, and engage in some savvy marketing. Every shark in the area will want a bite of your property, and the only direction the price will go is up.