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?

Landlord’s Rent Philosophy/ Policy: 4 Considerations

Have you ever wondered, why, we so often, see many empty store – fronts, immediately next door, to, fully occupied buildings? Why do some landlords, have far more tenant – turnover, and vacant apartments, than others? For the sake of this article, we will assume, all other things/ features, are similar/ equal, etc, so, we might fully examine, 4 basic considerations, a particular landlord’s rent philosophies, often impact. Owning investment property, can, either be, financially, smart, and valuable, or, a, potentially, risky proposition. This article will attempt to, briefly, consider, examine, review, and discuss, some things to consider, and evaluate.

1. Pricing: Some owners decide, their best strategy, is, to price, their rentals, as high, as possible, while others, prioritize the quality of tenants, etc, and might price, somewhat, lower. I have witnessed, stores, in great locations, remain empty, for prolonged periods, because, of the rents, while others, rarely are vacant! Proponents of the first philosophy, usually, proclaim, they do so, because of their belief, in the longer – term, future rent – rolls, will remain higher, by doing so. However, for example, if a store, charging $3,000 per month, remains empty for a year, how long, and how much higher must be charged, to make back, that $36,000 per year? Residential landlords, also have the option of pricing, at the highest – end, the middle of the market, or towards the lower end. If gouging tenants, is one’s goal, they must understand, it generally brings, more turnover, and eventual loss of rentals/ increased vacancies. A reality is, every time, an apartment, turns – over (one tenant leaves and another begins tenancy), becomes a significant expense for the owner!

2. Tenant quality: How valuable is the quality of a tenant? Wouldn’t you prefer quality tenants, who pay their rents, on – time, are reasonable, have good quality character, and take care, of your property? As an owner of several rental units, I have come, to realize, my ownership is far less stressful, than those, who only focus on getting, the highest rents!

3. Occupancy: When there is little turnover, and you maintain, near – full, occupancy, you will generally, have less stress, from being a landlord!

4. Cash flow: Calculate your rents, based on, a combination of your fixed/ known costs/ expenses, plus reserves for unoccupied apartments, repairs, renovations, appliance replacements, etc. When this is done properly from the start, you will protect having a comfortable, positive cash flow!

If you want to own commercial property, proceed carefully, wisely, and in a prepared way. Consider your options, don’t be greedy, and proceed, accordingly!