What is Your Rental Market Sweet Spot?

Question

Do you rent top of the market , middle , or below average rents?

Dawn Anastasi · Answer

I generally like to be a little below market rents and stay there.  I keep my places maintained.  Tenants who try to look to see what else is out there stay, because they cannot find anything better at a more affordable price.  My turnover is pretty low.  It's a good working formula.

Melissa Melia · Answer

I'm a newbie to Bigger Pockets, and want to say first, I love this post! Pricing strategy is one of the biggest levers we have as investors, and sets the tone for improvement schedule, marketing, how the properties turnover...

For the last ten years I've invested in an area with high demand and low inventory (Seattle), and have had moderate success pricing near the top of the market for the category & neighborhood.  Of course, this meant investing in upgrades the properties, and allowing pets to distinguish them from the rest of the market, so there are tradeoffs.  But it's proven to be a great model for me, and the properties have attracted tenants who have been excellent stewards of the properties.

Account Closed · Answer

Below market rent pays off in my opinion with giving you better tenant selection and retention.  Adding some features to the house that increase the value and makes it a special place to live helps also.  I like putting glass tile in the kitchens, ceiling fans, new windows and updated kitchens/baths.

Adrian Chu · Answer

Totally agree.  Your goal should be to minimize days of vacancy.

In the Seattle area, for market rate rentals, pricing at around market price should get you multiple applications in the first week.

Suhendri U. · Answer

Melissa, how do you find "high demand and low inventory" market? Beside having been investing in it for the last 10 years. Say I am an investor wanting to finding such market out of the state i live in.

Marcia Maynard · Answer

There is a severe shortage of affordable housing in our city. We have a mission statement that states: "We strive to afford safe, clean, affordable, comfortable, and quiet housing for responsible renters in the neighborhoods of West Vancouver." One of the operative words is affordable. So we price at below average market rent. We do a thorough tenant screening, so we don't rent to people who are not responsible. If we make a mistake in our selection and the tenant turns out to be a rule breaker, then we act to swiftly remove them. We benefit by serving a community need and having long term tenants. When we do have a vacancy, our units rent up fast.

Sean Ploskina · Answer

For my analysis of a property I take the average market rents and reduce by at least $50 for cheaper places and 10% for more expensive.  That way I know I will be cash flowing if things go a little sideways.

In general my units are marketed at the average for the type of rental.  Being too much under the market I have found can lead to the wrong tenants reaching to get into those units that they wouldn't normally be able to afford.

Jason K. · Answer

I agree with the majority of the folks on this thread. I'm a fan of pricing just below market rate. Recent conversation with my friend:

Friend: I squeezed out an extra $20 per month above market rate! That's an extra $240 per year in my pocket!

Me: Great!

Friend: I had 10 days of vacancy though.

Me: What? How much is your rent?

Friend: $1,000

Me: That's $33 per day, or $330! I wonder if you had priced at or just barely below market rate you'd have rented that unit quicker and had a bigger pool of applicants to chose from. Plus your competition has better pricing which could increase the likelihood they will move out sooner.

Friend: Oh shit. You're right.

Kimberly T. · Answer

We do the same as Dawn.  We keep our rents a little below market, only show the unit once it's ready to move in, and always maintain our properties in order to stay competitive; our tenants just can't really find a better deal than what we offer.

Steve Rozenberg · Answer

Thanks for all the info.. We have seen our best success by being just a little below average and also always making sure the property is in show ready condition and never before

What is Your Rental Market Sweet Spot?

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