Is Your Rental Under Priced?

The Importance of Pricing it Right

Before we even go into a discussion about price, it’s important that we first consider the cost of

vacancy. In any given year there are 12 months to rent a property. Whether you are counting a

year from when you begin to market the property or from the start of a calendar year, missing a

month of rent will dramatically affect the profitability of your investment.

The biggest mistake that I see home owners make is allowing their pride or mortgage

payment dictate what they think is the rental value of their home. In an effort to make

your property more competitive in the market place and find a great renter, generally

speaking, losing even a single month of rent to vacancy will be more costly than a minor

rent reduction.

Use the following formula to determine the cost of one month of vacancy versus a rent reduction

(Rent Reduction Amount $) x 12

Example: $50 a month reduction x 12 = $600

This determines your cost of a rent reduction over 12 months. The next step is to determine the

cost of one month’s vacancy. Compare the cost of the rent you are looking to achieve and see

how it compares with the cost of lowering the rent.

Oftentimes, I see people with a monthly mortgage payment that is higher than the house will rent for. Usually these people bought a property or refinanced at the peak of market value. They

simply cannot afford to sell and they cannot cover the cost of their mortgage. In this situation it

is critical that you be cognizant of the fact that your mortgage does in no way dictate the rental

market for your home. Any emotional or financial hesitance you may have to renting for a loss

are misplaced and could hurt you more in the long run.

You should also price your property at the high end of market value and never higher. Properties that are overpriced will sit without interest from prospective tenants. Effective marketing, that we will discuss later will get you in front of tenant prospects. If you are not receiving calls, it’s generally for no other reason than the price.

Price is the most important variable you can control in creating a market for your rental property

Pricing Indication:

1 or less inquiries a week – Overpriced

2-6 inquiries a week – Appropriately Priced

7 or more inquiries in a week – Under Priced