Help Finding First Tenant

20 Replies

I have my first property purchase underway. I close on a duplex in a college neighborhood in San Diego. Both units are 1 bed / 1 bath and I secured it using a VA loan. The closing date is 8/16.

I wanted to get the ball rolling and started Pre-marketing the nicer unit on Monday 7/31. I wasn't sure what the market value for rent was but I definitely set the initial price point high.

For a 600 sq ft, 1 bed 1 bath, updated kitchen, hardwood floor, W/D set, private yard, and ~300 sq ft covered patio I set the price at $2100. I honestly wasn't expecting any response at all.

Within the first 1.5 days I got 4 leads. This past weekend I had a few more and a scheduled viewing for tomorrow. I contacted all the leads that came in earlier this week but I haven't gotten a response back via phone or email. So I guess they lost interest.

So does this validate that the price I am requesting is an honest value? Should I continue to market it at this price for the following week? What metrics do I use to determine if I need to drop the price or not?

Thanks for your continued support BP!

Hi Patrick,

Congrats on your first property purchase!

I recommend your pricing be based on market "comps." What are similar properties being rented for in the surrounding area? If you think your units offer something better than the nearby comps,  you can justify asking for a little more. 

If your asking price is in the right ballpark, it's too early to consider dropping the price. There are lots of renters out there, and you should be able to find a quality applicant.

Good luck!

Hi @Gregg Watkins ,

Thanks this process wasn't as difficult as I imagined. Definitely nerve racking though!

So I was discussing this with my realtor who is also a landlord, he was thinking my unit is within the range of $1900-2100. He recommended that I do a market test at $2100 to see if it can generate any leads and adjust my price point down depending on the results. I'm just not sure how to interpret the results that I do have. 

Doing comps is definitely a weak point of mine. It's more comparable to the 2-3 bedrooms in the area but obviously with less rooms. As far as rents, how much more value is another bedroom? If I find a 3BR comp, how much should I deduct from their asking price per bedroom. Also, I've also heard that posted rentals aren't exactly an accurate way to measure the market. Is there a way to find out the value of rent of the occupied units in the area?

@Patrick Senas , in order to command top rent, your unit needs to be top-rate. I would not waste my time comparing your 1/1 to anything other than a 1/1.

Also, remember that a lead isn't a tenant, there's still a lot of work to be done. People call about properties all the time then never go see them, or worse - make an appointment and then don't show up. Cluster your showings so that multiple people are seeing them at once. It creates a sense of urgency and you don't waste your time if half of them do not show up.

Hi @Mindy Jensen , that's the difficult part. The only other 1/1 units are apartments and condos. The average 1/1 condo in my area is priced on average at $1400. That's for a unit with laminate flooring, updated kitchen & bath. When I use comps the difference is that my unit has hardwood floors, ~300 sq ft covered patio, W/D, private yard and water bill is covered by me. Realistically, how much more can I demand for those differences.

@Patrick Senas I know you probably have your bases covered, but did you get permission from the sellers to market the unit  before you even close? Is it a part of your purchase contract?

@Michael Noto Well actually I did not. Unless my agent talked it over with the sellers agent. I'll have to confirm. My agent was the one that recommended I do it, so I just chalked it up as "market research". I did wait until I removed all contingencies though. If that matters. 

Is it against the law? I was just hoping to have tenants lined up and on a lease the same day I close escrow.

@Patrick Senas Are you actually showing the apartment? You don't own it yet so I would  think you need permission to do so. I would ask your agent if the sellers are aware and go from there. 

Do you have your system in place to screen tenants?  When we were starting out in 2013, we had to have a home visit to make sure our home office was secure; we had security in place on our business computer, marketing plan,etc.  It took a couple of weeks to get the visit scheduled and for us to be approved so we could run credit checks.  I realize the new on-line systems may make it easier, but there may be an approval process.   In 2013, we were told that the home visit was needed to comply with the revised credit laws since the 2008 crash, and that we were a legit business and not ID thieves.  The last thing you want is an eager applicant, and you have no way to screen them.  I would be spending my time getting an application,  lease and tenant screening systems in place while waiting for the property to close.  

I do market research by looking at rental postings (Craigslist, Zillow, Trulia, Hot Pads) to determine market rent.  If the average 1/1 condo is going for $1400/month I will be surprised if you can get $2100 (or even real close to $2100).  

Here is my rough estimate of numbers that I see on my postings: about 20% of the people that express interest actually come to see the property.   Our units are nice so maybe 75% indicate they will turn in an application but maybe 20% actually do.  It is best to get the application and fee when they are still at the property.  If they leave with an application indicating they will fill it out later I would guess maybe 10% actually submit the application. 

Using these numbers we need 50 people to express interest to get 2 applications when rent is set at market.  Note lowering the rent below market rent increases the odds of getting applications.  Similar if you are asking above market rent it will be challenging to get any applications.  Furthermore the people who would apply for a unit with above market rents may have issues renting and cannot rent units set at market (such as evictions) and could be undesirable tenants. 

It is a pain to screen a tenant to determine that they do not meet the criteria for renting the unit.  It takes a little time, costs a little money (paid by the potential tenant) and holds up the process a couple of days.  Best to be clear on minimum qualifications (no evictions,  no felonies, income y times rent, etc.). 

Good luck

Sounds like you are operating your business with a "fly by the seat of your pants" approach. Good luck with that approach.

You had best be well versed on tenant screening if you plan to proceed. Set up a strictly defined criteria and stick to it. No point in having standards then posting on here that you have a applicant that does not meet all the standards....should I rent to them anyway. That is a very unprofessional approach that will end only one way. Not a good way.

@Patrick Senas

Congrats on your first rental. The difficulty with establishing the rental market for rent price is they are generally not on the MLS. Zillow, rent-o-meter, hot pads, trulia, craigslist, that is where most are found. That is your market.

@Mindy Jensen is correct, you need to find 1/1 so you are using the right comps.  If your unit is high end then ask for high end rent.  Be careful not to confuse phone calls, emails etc with actual showings.  I generally set a time for showings and try to have multiple appointments.  Too many no shows.  You will know quickly if you are overpriced.  Have a plan for screening tenants.  I charge an application fee to cover the screening service.  Have your rental agreement ready to go and rules and guidelines to follow.   I include a three page cost of damages beyond normal wear and tear.  

Good Luck. 

@Bettina F.

I'm actually planning to use an online application & screening service called Cozy. I've heard great reviews from users on BP and other web forums. I really like the option of receiving rent payments online. Free for ACH transactions. With that I already have the property listed and they just click the Apply button, create an account, and apply. At least that's what I think, I'll find out soon enough.

@Patrick Senas Looks like you are getting a lot of great info here. I'd like to add that you might want to check out rentometer.com to get an idea of cost of rent in the areas you are renting in. This has worked well for me in Connecticut and Massachusetts. 

I run numbers on my marketing of vacancies and have found that on a typical apartment listing, I will get 2-300 inquiries via the typical zillow/trulia/hotpads/realtor.com/apartments.com listings. About 25% of those will prequalify for the apartment. I don't show the apartment to folks who aren't pre qualified via a pre qualification form I send them. From those 50-75 people who are pre qualified, about 1/2 will actually show up to the showing, and about 10% of those 35 will actually submit an application. 

It's all a numbers game :) Good luck and let me know if you have any questions! 

@Dan Heuschele To clarify, when I say condo's I'm speaking of large complexes with 1/1 units. The other 2-4 MF units in the area range from 2/1 - 3/2 configurations. It seems that the duplex I'm referencing is the only one of its kind (at least from what's posted online). I haven't seen any 1/1 duplexes in any listing in San Diego to compare it to. There are many 1/1 "cottages" that people have added onto their homes. Which in certain areas is very common. The locations of the properties isn't anything to write home about though.

I do understand the need to create a larger funnel that will eventually lead to a tenant; and I've discussed this with my agent who has been helping me navigate the realm of landlording. He's a landlord himself with multiple properties. We agreed that since there isn't a rush to get a tenant in place immediately we can test the market to see what I can generate as far as leads with a smaller/higher priced funnel. We didn't want to set the bar too low and regret it later.

From our own comp analysis, we think market rent for this particular unit is closer to $1900. In the vicinity of the property the other homes offload all of the utilities to the tenants. They can list it for a lower price because they have less monthly expenses. Unlike my units where the water isn't individually metered, I would have to take on that expense for both units until I can get that set up with SD Water. I was thinking of using that tactic, list it for a lower price, and have a fixed price for water utilities paid directly to me as part of their expense.

Hi @Thomas S. , I wouldn't say I'm winging it exactly. I have done my research and read the applicable books. I've established my criteria and have those outlined in the listing as well. My concern wasn't in the screening process but in getting the prospective tenants to screen in the first place. Mostly with learning how to properly appraise the market value of each unit. But again, I'm new to all of this so there is definitely a learning curve. Reading about being a landlord is one thing; but applying what I've learned is a completely different beast.

Hi @Kenneth Garrett and thank you. I'm actually from Wauekgan, IL! Not too far from you. For all the people that wanted a showing, I set a time and I told them to confirm their appointment with me an hour before the viewing. I learned that from a BP book actually. So far they've done just that. I've done the same steps that other PM's have done with me when I was shopping for a rental. They did the showing, let me walk around, explained some generic things and that was that. They never went over the rental agreement, rules and guidelines during the showing. They usually did that during the signing date. Should I start doing that from now on? Is there a benefit in doing it beforehand?

Also what is a sure way to know if I'm overpriced? If I don't have any applicants within the first week? Should I be expecting 100s of inquiries within the first few days?

Oh wow @Filipe Pereira , I'm definitely not hitting those numbers as far as inquiries go. So in my area all utilities are typically paid for by the tenants. In my case, I would be paying for water, sewer, and trash. Hence why I listed the unit for more.

Would it be perfectly fine to lower my listing price and add a flat fee for water and offload the sewer and trash as part of the utilities they are in responsible for? The units aren't individually metered so I can't pass that off just yet. I may implement RUBS if it's too costly to individually meter them. I think that will get me to generate more leads.

Originally posted by @Patrick Senas :

@Dan Heuschele To clarify, when I say condo's I'm speaking of large complexes with 1/1 units. The other 2-4 MF units in the area range from 2/1 - 3/2 configurations. It seems that the duplex I'm referencing is the only one of its kind (at least from what's posted online). I haven't seen any 1/1 duplexes in any listing in San Diego to compare it to. There are many 1/1 "cottages" that people have added onto their homes. Which in certain areas is very common. The locations of the properties isn't anything to write home about though.

I do understand the need to create a larger funnel that will eventually lead to a tenant; and I've discussed this with my agent who has been helping me navigate the realm of landlording. He's a landlord himself with multiple properties. We agreed that since there isn't a rush to get a tenant in place immediately we can test the market to see what I can generate as far as leads with a smaller/higher priced funnel. We didn't want to set the bar too low and regret it later.

From our own comp analysis, we think market rent for this particular unit is closer to $1900. In the vicinity of the property the other homes offload all of the utilities to the tenants. They can list it for a lower price because they have less monthly expenses. Unlike my units where the water isn't individually metered, I would have to take on that expense for both units until I can get that set up with SD Water. I was thinking of using that tactic, list it for a lower price, and have a fixed price for water utilities paid directly to me as part of their expense.

 We own duplex to quad but all units are at least 2 BR and we do not see that type of markup versus the condos/apartments rent.  I would guess our markup is a max of ~$200 over the condo/apartment rent.  So I suspect your $1900 estimate is high unless you are seeing apartment/condo 1/1 rent at close to $1700.  

I posted my approximate inquiries versus applicantions for my San Diego units to provide you some in sight as to the number of inquiries you can expect per application.  About 50% of our applications do not pass our screening even though our ads list most of our qualifications (we do not list minimum credit score because we accept co-signers).  

In almost all of our units we charge for water used.   It is based on a percentage that we set in an attempt to be fair.  For example we have a duplex that has a 2/1 unit with virtually no waterable yard and a unit 4/2 with a modest size yard.  The water bill is split 40/60.  Adding water district supplied meters is expensive.  Reading other meters is expensive.  For an alternate approach look for a posting by @Justin R. on charging for water. To summarize the post from memory he charges a fixed fee for water monthly but once a year (or upon checkout) trues up the amount based on actual use.  This is similar to how sdg&e handles solar on the fixed rate plan.  It is a very fair approach but requires installing water meters and reading them once a year.  My approach is not as fair but likely less effort as the spreadsheet to determine water bill is already created.  We simply enter the bill amount and the spreadsheet tells us what each tenant owes.  We charge last month' water with this month's rent; so we are always collecting for the previous month's bill. 

By having tenant's responsible for water they are ideally less wasteful of the water which in San Diego is a precious resource. 

Good luck

@Dan Heuschele , I love the water splitting idea. I'll look into that. Going off of the previous owners leases and Schedule E, they have been leasing the unit for $1750 since 2013. Which is astonishing in itself especially during that time. Though I'm not privy to any special circumstances that may have caused them to charge the tenant more. I essentially took that information and did some rough calculations to account for rent increases over time and came to the range we're discussing now.

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