I've bought a rental property recently, my first one, and am looking at similar units nearby for the market rate of rentals.
To be able to cash flow, I need to charge a monthly rental of about $800. However, when I did a bit of research, I noticed that bigger units rent for the same amount (say, both are even in the same location).
My question is, how do I justify renting out my unit at the same price if it's smaller? What other factors can I improve on to compensate for the unit's size?
Many times the market dictates and there's just not anything you can do. However, if you know details of the comparable rentals, you can market your unit as the high-end rental. Include more amenities (appliances, better building materials, wifi, etc.). If you're the only unit of your size offering granite, or whirlpool tub, or a smart home, there will be tenants willing to pay more for the square footage or willing to settle for a smaller unit (like yours) at the same price. Think out of the box, otherwise, there's not incentive for them to pay more.
You have to spend money to justify above market rent. Unless the increase in rent is substantial it rarely justifies the expense. Money spent needs to recouped through higher rents in under two years to make it worth while.
More than likely you will only incur longer vacancies trying to rent above market.
You need to go big or sell.
@Ava G. also take from this the bigger lesson: due your diligence before you buy! You would have been able to see that the higher rent you are after would not be likely and then you could have passed on the deal or negotiated a lower price. Now you're left holding a negative cash-flow property due to something that could have been discovered with 10 minutes on the Internet prior to purchase.
My first deal was pretty bad, so don't take this as being mean, just make sure to learn the lesson so your next deal is better :)
You may be able to add some "bling" to them. Look at what the larger units don't have. Maybe you can update with new paint, carpet, updated kitchens? Maybe tile the bathroom wall? One investor I met dies his units with stainless steel appliances & dishwashers, and that is a great wow factor for some tenants. If you have multiple units, maybe you can try to work a deal with a cable company for a discounted rate, and add that an amenity? Ask tenants what they want & see if you find a common thread. Best of luck to you!
My experience with all of our properties on what tenants will and won't pay for:
Will: prime location; maximum square footage possible for the price range; an extra bathroom; good storage; no carpeting; accepting pets; fenced-in yard; central HVAC; main-floor W&D hookups.
Won't: fancy appliances; upgraded counters; jacuzzi tubs; fancy outdoor spaces; throw-ins (lawn care, pest control, etc); fancy floors; fancy window treatments;
Our tenants have consistently told us that they value the most space per dollar that they can get, in the best location, with basic amenities more than anything else.
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