When should you lower your rent and get the property rented and when should you hold out and get the better rent.

To answer this question, I have put together a simple example that is loosely based on a unit that we currently manage.  The owner came to us wanting his unit rented immediately as he hasn’t been able to rent his unit on his own and the bills were growing.  He wanted $2500 per month to cover his mortgage, taxes and condo fees.  Until the unit is rented the owner was also paying the electrical bill.

With the right rent, we were sure we could rent the property in a month.   After some analysis we calculated the maximum rent for a comparable property in the area was $2300 and average rent was $2100.

After explaining how we got our rent amounts, the owner was firm on his rent of $2500.  Magnum has a policy to allow owners to select their own rent amount; all we do is recommend an amount.  I explained to the owner about what it really costs for every month of missed rents.  Here is how I explained it to the owner.

If we assume that we can rent the property for $2500, and the tenant signed a 12 month lease, if it takes one extra month to rent the property at $2500, you are $100 ahead compared to lowering the rents to $2300 and renting it in the first month.  This is good news.

$2300 x 13 months =       $29,900

$2500 x 12 months =       $30,000

Ahead                   $100

For a two month delay in renting, you are $2,200 less.

$2300 x 14 months =       $32,200

$2500 x 12 months =       $30,000

Behind                  -$2,200

For a three month delay in renting, you are $4,500 less.

$2300 x 15 months =       $34,500

$2500 x 12 months =       $30,000

Behind                  -$4,500

After missing three months you are even better off lowering your rent to $2,100.

$2100 x 15 months =       $31,500

$2500 x 12 months =       $30,000

Behind                  -$1,500

I haven’t taken in to account any vacancy costs like utilities and any property inspections required to keep the property insurance valid (most insurance requires inspection every 1 to 2 weeks, some policies are every 3 days).

Since most tenants with reasonable rent do stay longer than 12 months (Magnum averages over 3 ½ years) the owner is better off to get the tenant in on the first month, sign a 12 month term lease and increase the rent for the second year to $2400 or $2500 depending on what the market can handle.

After hearing all of this the owner agreed to lower the rent to the $2300 per month.  As with all good stories loosely based on the facts, this story ends with the property renting the first month and the owner being very happy with our services.

That’s the importance of market rent! If you would like us to complete a rental analysis on your property please contact us.