By Joe Phillips
•
October 16, 2024
At Focus, we understand that your rental property is an investment and that setting the right price is important for optimizing your potential profit. Determining the best rental rate for a property can be challenging. Setting the rental rate too low will hurt your bottom line. Conversely, charging a high premium compared to similar properties in the area can lead to longer tenant vacancy, which is also costly and affects your bottom line more than you might suspect. This document shares information about: How Focus helps you determine the rental price sweet spot, Factors to consider in the pricing process – including the cost of vacancy, and How Focus’ processes are designed to proactively command top dollar. Focus’ Rental Rate Estimate Ultimately, the final rental rate decision is up to you as the owner. That said, as your property manager, Focus will complete and send you a rental analysis and estimated rental rate. Our rental analysis takes into account several factors such as: Rates for comparable properties looking at: Active and leased comparable properties on the MLS, which is the site that real estate brokers access to help clients buy and sell homes. Rental data is less prevalent in this system compared to “for sale” property data, but some rental data exists, and we comb through it to leverage what we can. Rental rates for properties on Zillow. The Zillow “Rent Zestimate,” which is what Zillow thinks the property could rent for. Redfin’s Rental Estimate, which looks at aggregate rental data and presents an estimate of the fair market rental value of an individual home. Level of market demand and lease-up time that we are seeing based upon: Overall market conditions (driven by numerous factors such as rental saturation, seasonality, and interest rates) and Rentals similar to yours (size, location, pet policy, amenities, etc.). Your pet policy since allowing pets opens up the prospective tenant pool, can decrease time on the market, and can decrease tenant turnover. The Cost of Vacancy Despite the rental analysis, some owners are torn on whether to charge “just a bit more” on their rental property. For this reason, we want to outline some important considerations in making the final rental rate decision because charging too high of a premium compared to similar properties in the area can lead to longer tenant vacancy, which can be costly. In fact, the cost of vacancy can, at times, quickly offset the benefit of “just a bit more” rent. Let’s break this down a bit by listing some of the tangible costs of vacancy: Lost rent (which we often see in the range of $3,000 to $4,000 in our portfolio) Re-leasing fee costs, which is half of the lease’s first month’s rent Tenant turnover costs, which includes maintenance that inevitably pops up between tenants and is necessary to get the property ready to re-lease Your property carry costs, which includes your mortgage, taxes, insurance, utilities, etc. The lost rent alone is significant. If “just a bit more” rent results in your property being on the rental market for longer, it could take months (or even years) for the higher rent to make up for the cost of prolonged vacancy. To bring this to light, below is an example where, if you chose to increase the rent by $100 more / month and that caused the home to be on the market for an extra 2 weeks, it would take 1.3 years for the higher rent to make up the cost of vacancy. If the leasing took 4 extra weeks, it would take over 2 years for the higher rent to make up for the cost of vacancy.