I have always wondered about how people price a property for rent. It has been my experience that what you price a property can help with screening your tenants. Sometime I will ask people that have their properties well below market value why they have the rent so low and they almost always tell me the same answer "I keep the rents low to keep it rented". Although sometimes I can see their point, for the most part this is just untrue and it hurts them much more than helps. When I price a property in a new area, I will look to see what everyone has there properties listed at for comparable properties and I will try to stay in the high range of what is listed. To find these other rental properties I look a lot at Craigslist, Trulia, and Zillow. Below are the reasons for keeping prices in the mid to high range:
- Keeping the price higher helps weed out some of the bad tenants that are looking for desperate owners that will take anyone.
- Obviously keeping your rents higher give you a little extra money every month, but the bigger picture is that if you start the rent higher and do small rent increases every year, it makes the value of your property worth much more. An extra $10 per month on your property is only $120 per year, but it adds about $1200 of property value (this will be more or less depending on area). I almost never get a decrease in my tax or water bill for a property. Your bills to own the property increase and so should the rents.
- This is really important when you get a large number of units. If you raise your rents by just $10 a month every year and you have 100 units, that is $1000 extra income every month, which works out to be $12,000 per year and it would add around $120,000 of value to your properties if you were to re-finance them or sell them.
- The other problem is that when you don't have regular rent increases, many times you start to feel like you can't raise the rent otherwise they may move on you. I know someone who has lived in the same property for 25 years with no rent increase. Their rent is $250 for a 2 bedroom, today's market rent for that area should be $600 per month. That is $350 they are missing a month or $4,200 a year. The property does need a lot of repairs, but with an extra $4,200 a year, the owners could have made a lot of repairs and it would not have cost them anything extra.
- The other thing to remember is that if you really want to get top rents out of your property, you should make them nice and keep them updated.