Monday, September 26, 2011

5 Steps To Pricing Your Rental Property For Maximum Profit

Everyone wants top dollar for their rental property. After all, don't you want to maximize your annual profit?
After 20 years renting properties in Sarasota involving thousands of leases, I've often seen owners demand unattainable rates and I have come up with 5 simple rules to pricing your property for maximum gain:
  1. Research the market:

    1. Evaluate the prices of recently leased properties - Call local landlords, they are usually happy to share that information. Make sure you get actual lease price as opposed to asking price. Most property managers have access to MLS data which is very helpful here.  
    2. Understand the Competition - Check the internet (or the landlord down the street or MLS) to see how your property compares with other properties which are being advertised. How does your property stack up to others with similar asking prices?  
    3. Absorption Rate - This is where it gets a little tricky. You want to know how hungry the market is for your product. Research the amount of competition currently on the market verses the number of properties leased over a specific period of time i.e. the previous 6 months. Here again a professional property manager can help by accessing the MLS data.  
  2. Get broad market exposure - isn't enough and often attracts the wrong prospects. You want to blanket the market by getting on as many rental web sites as possible (and MLS if you have access). There are several paid rental advertising sites which also network your property out to other partner sites - at SML we use over 50 different sites. If you do not have broad exposure, then you are missing large chunks of the market.  
  3. Read the market tea leaves - Just as a fortune teller looks into her bowl of alphabet soup waiting for the letters to spell out a message, you too can read what the market is telling you. Most paid advertising sites provide you with statistics on your ad such as the number of search results that reveal your property, the number of detailed viewings, calls, emails etc. Now add to this your own data regarding the number of showings and comments from prospects and you have valuable information.  
  4. Analyze the market data - Now let it begin to paint a picture. If you received 1,000 page viewings and 100 detailed viewings in a week's time, however, only 5 inquiries and 1 showing that amounted to nothing, then the market is speaking to you. It is saying: "people do not see your value."  In this case your pricing is too high compared with your perceived value. (This is assuming that your ad is well done with good pictures and accurately represents your property).  
  5. Adjust quickly - You now have two choices; increase the perceived value of your property or reduce the price. Keep in mind that by extending your vacancy period by 1 month, you would have been better off reducing your asking price earlier and getting it rented sooner. For example, if your property leases for $1,000 per month and it takes 1 month longer to get it rented, you just cost yourself $83 in lost rent (per month) and would have been better off by reducing the asking price by $50 and getting it leased 1 month earlier. Also, chances are good that you would have eventually had to reduce the price to get it leased anyway.  
Another risk of pricing too high for too long: you may eventually lease to a less qualified tenant. Since these prospects usually can't compete for more fairly priced homes, they have fewer options. This makes them more interested in your property. Eventually, your desperation will rise and the temptation to rent to a less qualified tenant may win out. On the contrary, if you are priced competitively, you should have multiple applicants and can select the most qualified tenant. This is the recipe for success.
Finally, keep your eye on the goal of maximizing your annual revenue while minimizing expenses. If you do your marketing correctly you can reduce vacancy cost while reducing your expenses by selecting more qualified residents. Consider hiring a professional property manager who is skilled and knowledgeable in marketing your property. 

At Sarasota Management & Leasing we can show you how our results help you ensure your financial success as a property investor.