In our last post we discussed one scenario when you should consider reevaluating the amount you charge for rent – during a lease renewal period. Here we’ll talk about how to approach setting rental rates when a unit is sitting vacant.
Scenario #2: Evaluating Rent Rates When a Property is Sitting Vacant
Setting the market rent on a vacancy is a little more straightforward than it is when setting rates on a renewal because you can look to the marketplace for guidance. In essence, all the listed units are the supply and all the people looking for places to stay are the demand. From there, you can do a market rental analysis of the comps in the area and come up with a price that makes sense for your property given what you know about the current market conditions.
A word of caution when setting rent rates, however. Some people have this idea that they’re going to set the rates really high in order to get “good” tenants. Unfortunately, that isn’t always how things play out.
The people who are great tenants on paper those who have strong credit scores, no criminal history, no eviction history, etc – can include those who are looking for a deal. They’re shopping around, they’re getting to know the market, and there are knowledgeable and have no intention of paying more for a similar property they can get elsewhere.
Discerning, high-quality tenants are going to pay the absolute minimum rent for a high-quality space that fits their budget and needs. This is the kind of resident you want to stay in your property. Ones who intends to stay a long time, take good care of the place and pay rent on time.
The people who are willing to pay more can actually become bad tenants. These are the people who may a criminal history or an eviction on their record, and 90 percent of landlords won’t rent to them at all. They may be willing to pay almost whatever it takes just to sign a lease and be done with it. It’s nearly certain that if you’re asking way above market rate, you risk only getting bad applications.
How to Set Fair Market Rates
Setting your asking rent at a fair market price or even slightly below will help to get you the high-quality applicants that you’re looking for. Moreover, once they move in, they’re much more likely to stick around because they trust that they’re paying a fair price.
If you did happen to secure a resident who agrees to pay a slightly higher market rate, guess what? They’re going to catch wind that they’re overpaying and, as soon as they’re able, they’ll be back out and shop around for a better place to live at a better price.
To hear more from us about how to reduce vacancies in your rental properties, watch our webinar replay on the topic where we discuss several strategies for reducing vacancy and helping you become more successful with your property investment. As always, if you have any questions, don’t hesitate to get in touch.
