My wife and I recently closed on our 2nd rental property (thanks to a lot of advice from the BP forums!). Things are going great, and we just listed it for rental and held an open house.
We seem to have priced the property too low! The open house was packed, and I even received some inquiries that were skeptical of it's reality "Very interested in this space, but the price is so low. Would like to talk more"
Based on speaking to our selling broker, (who also does rentals) and a few other people, we might be 15-25 percent below market.
We've definitely learned our lesson, and I think there are things we can do prevent this in the future. But my question now is whether we should circle back and raise the asking price.
We've already posted online ads, had lots of people spend time to come out and look at the space, and there's something that feels deceptive about looping back and telling them we want more money (or posting a new add).
At the same time, I feel like we should be looking at this from a perspective as a business owner, and we are really leaving money on the table from a financial perspective.
Has anyone else ever experienced this? Would love to hear your thoughts.
pricing is a very sensitive and important exercise to undertake prior to advertising
Did you research the comps in the neighborhood before fixing your price?
Anyways, there are smart ways not to sell even at this point. Ensure you include exit clause in the contract; talk to an attorney
From a business owner position (especially just starting out) you should work to maximize your profits. As long as you didn't already promise someone the property for the lower price, you should be fine. Disclaimer, legal advice not given.
It would be a mistake to leave money on the table if you can avoid it. Whoever ends up being your tenant will be fine with the higher price as long as it's not above market.
Best of success!
Ndy it's a rental (buy and hold) not a sale (flip)
How many people filled out an application?
Take the best applicants and let them know straight up that there's too many applications, they are in the top 5 (or X), would they be willing to spend X dollars more for the property?
From a Renters stand point I wouldn't want to play the cat and mouse game "How much more would you bid" scenario, it would red flag me. But if the landlord was honest, told me the situation, told me it's his fault for pricing it too low and the only way to resolve the issue (too many applicants) fairly was to raise rent and that raising rent now meant he wouldn't need to raise rent next year (see the positive spin here)... I'd be down with that.
I would pull the previous ads or amend them with the new price. It sounds as though there was no deception intended. As the owners of the property, you have the right to raise asking prices, keep them the same, or lower them. As long as you did not accept applications AND any fees you should have the right to adjust pricing. No legal advice given or intended!
Have you received any applicants?
Extremely helpful guys. Thank you for all the advice.
Definitely a learning experience here and I think we'll be doing a lot more due diligence next time around to make sure this doesn't happen. I think we were a bit overeager to get that rental income coming in ASAP.
We received several applications, but have signed no contracts, or taken any deposits or even application fees.
Many of the candidates look to be well qualified on paper. Our game plan was to process tenants that met our qualifications in the order received, and if references check out do the background check with SmartMove and have them pay directly for that via credit card.
I really like the feedback of being honest and straightforward about the situation and looping back to current applicants as Jane and Bud suggested. I'll be discussing with my wife and will let you know how we proceed and how things work out.
Keep us posted on what happens. I had this exact thing happen a couple years back. The open house was so crowded that people bid it up on their own when applying.
I had researched the comps in the general area pretty well, but didn't take into account it's particular location that was more convenient than others in the area. Lesson learned!
So just as a follow up to this:
We circled back to our qualified applicants and let them know that we had raised the rent. Some of them moved along from there, but several still wanted the place at the higher price. We signed a lease and they moved in yesterday.
In retrospect, I think I may have just made a bigger deal out of this than it really was. We did everything we could to be open and transparent with everyone. Whether our applicants decided to withdraw, or that they were cool with the higher price, everyone seemed very understanding.
Thanks for all the input, guys!
Thank you for closing the loop and letting us know how this turned out. I currently have the same issue and will be transparent to those I've already prescreened and setup a showing.
What was the original ask vs the price they ended up paying?
@ James - This is an over under duplex and we listed the entire home (internal stairs to upstairs) and listed the two units separately. Entire home $2,300, unit 1 $1400, unit 2 $1100. Essentially we left $200/mo on the table with the thinking that 1 tenant is easier to manage than 2, however our response to all 3 listings has been significant. We've updated the entire home price to $2,500 and informed the interested parties. I'd be interested to see what increase Jacob did as well.
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