Landlords: What Is Your Pricing Philosophy, And Why?
Many people realize, investing in real estate, if done, in a prepared, knowledgable, realistic way, is an important component, in their overall investment portfolio. However, it also requires, instead of being greedy, a smart landlord/ investor, must fully examine, and delve deeply/ discover, a pricing philosophy/ policy, which maximizes the potential return, in a reasonable, rationale, pragmatic manner. There are many considerations, to consider, but, rather, than proceed, either focused on greed, or a degree of laziness, doesn’t it make sense, to proceed, with a logical policy, which will best serve, your best interests? With that in mind, this article will attempt to briefly, consider, examine, review, and discuss, some of the central considerations, etc.
1. How many similar properties do you own, in the area? When asked why, so many landlords, refuse to reduce their rents, in order to attract tenants (especially, when it comes to storefronts, and office space), the response is often, because they don’t want to limit the continuous expansion, in pricing, of rents, into the future! However, from a mathematical, logical perspective, let’s evaluate, what the impact, of every month’s vacancy, means, and how long it might take, to recoup, these losses. For example, let’s assume the asking rental price is $4,000 per month, for a specific storefront. A prospective tenant has offered $3,750, and the landlord refuses to nudge. The difference, of $250 per month, would take 16 months, at the higher rent, to come out equal. If it takes three months to rent, at the higher year, it will require 3 years, to break – even! Does that make sense? Even if it did, it would only make sense, for someone who owns many units, in the specific area!
2. Renting in a two – to – six unit building: If you are investing in a two – to – six unit, residential building, what should be your priority? Should you, merely, focus, on getting the highest rents, in the area, or would you be better served, by finding highest quality tenants, who, if they are satisfied, may stay, for a longer period. Every time, you need to find a new tenant, there is another expense, which you do not encounter, when you maintain your existing tenants. I always strive, to impose realistic rents, from well – qualified tenants, and have been fortunate, enough, to maintain tenants, far longer, than nearly all other similar places, in the area.
What is your pricing philosophy, and policy? Can you afford an extended period, of vacancy? How much have you put aside, for reserves? Can your cash flow, afford it? Does it make sense, in relation, to how long, it takes to make up, the loss?