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Everyone wants to receive the highest possible rent; it’s a great way to increase your monthly cash flow and the ROI of the property. Just receiving more rent, however, doesn’t necessarily mean you’re earning more profit.

Advantage Property Management Services manages both single-family and multi-family rental investments in San Francisco’s East Bay, serving cities in Alameda and Contra Costa counties, including but not limited to San Ramon, Danville, Pleasanton, Livermore, Dublin, Castro Valley, and San Leandro.

It’s quite common for us to talk with real estate investors who are confident their property is worth a certain amount of rent; maybe it is, maybe it isn’t. If you underprice the rent you are leaving money on the table. Overpricing the rent can backfire and end up costing even more in terms of a long-term vacancy. Proper rental pricing is essential to avoid a long vacancy period and maximize your net income, and a property management company can be extremely helpful in this area.

The Dangers of Overpricing Your Rental Property

Overpricing the rent nearly always leads to higher vacancy rates and unnecessary vacancy costs. This is more expensive than reducing the rental price by $100 per month to rent the property quickly. For example, a property that sits vacant while asking for $3,000 per month is costing you $100 each day in lost income. If, on the other hand, you reduce the asking rent to $2,900 per month, and it rents in 5 days instead of 20 days, you’ll make $1,416 more that month than waiting to find a tenant to rent the property at the $3,000 rent.

Keep in mind too the holding costs like utilities, gardening and cleaning, and your time driving to the property for showings or just to check on it.

A rental price that’s too high will also impact the type of tenant you attract. Smart, qualified tenants know the market. They have already looked at similar properties also available for rent. When your rental price is higher than it should be, many prospects may not even inquire, and your pool of potential tenants will shrink. If the property stays on the market for too long, prospective tenants will simply assume there is something wrong with it and will move on.

When the rental price is too high, there is also a risk of renting to a lower quality tenant. More often than not, prospects who have been rejected elsewhere are willing to pay a higher rent as they are often desperate to find a place to live. The tradeoff is you may get the rental price you want, but end up renting to someone with mediocre credit, a history of late payments, evictions, or irregular employment and income that may lead to some very expensive problems down the road.

Ultimately, you want to price your home at a rate that’s consistent with the current market. By not doing so, you risk a longer vacancy period where you aren’t earning any rental income, a higher probability of renting to a less-than-ideal tenant, and the potential for property damage and further financial loss.

How to Properly Price Your Rental Property

Two things are needed to properly price a rental property: reliable data and local market experience. Pricing a rental property is an art as much as it is a science, and experience in the local market is essential. Collecting the market data that’s available will only go so far if you don’t know how to use that data.

Good data will tell you what other properties are renting for and how strong the rental demand is currently. You’ll need to monitor the local rental market consistently to keep up with the numbers and the facts.

It’s best to survey the market from the tenant’s perspective. Look at competing properties so you know what types of prices potential renters are seeing. Make sure you’re comparing properties that are similar in location, size, and condition, and adjust the rents up or down for the comparable properties based on differences, like location, pet policies, amenities, upgrades, etc.

Online sites such as Zillow are a good place to start. However, they only give a very basic estimate of what a property might rent for based on asking rents, not actual rents. They also don’t consider factors like the property’s specific location or condition.

Professional property managers can help you look at the market, analyze the rents, and come up with the right price. At Advantage Property Management Services, we use a tool called RentRange. This unique computer program provides rental estimates, comparisons, and market analyses based on national data to tell us what your property may be worth in the local market.

Data alone can only do so much; our leasing team takes the data from RentRange, along with current local market data, to estimate your property’s rental rate. We’ll consider its condition, upgrades or special amenities, whether you allow pets, and what time of year you’re putting it on the market.

The key to coming up with the right rental price is the experience you get from a local, professional property management services company who knows the market, the micro neighborhoods, the tenant pool, what renters are looking for and what they’re willing to pay – something online websites simply cannot offer.

The Benefits of Pricing it Right

The Benefits of Pricing it RightA competitively priced property will tend to rent more quickly, reduce vacancy costs, increase the tenant pool and attract the best qualified applicants. Securing great tenants also helps minimize the chance of having to evict a tenant or pay for property damage. And by not holding out for a higher price, you’ll keep it occupied longer by tenants who are eager to continue renewing their lease.

If you have any questions about setting rental prices or anything else related to property management in the East Bay, please contact us at Advantage Property Management Services. We’ll be happy to help.