Many people realize that investing in real estate, if done in a prepared, informed and realistic manner, is an important component in their overall investment portfolio. However, it also requires, rather than being greedy, a savvy landlord/investor who must fully examine and drill down/discover a pricing philosophy/policy that maximizes potential return, reasonably, rationally, and pragmatically. There are many considerations, to consider, but, instead of proceeding, either focused on greed, or a degree of laziness, doesn’t it make sense to proceed, with a logical policy, that best serves your best interests? With that in mind, this article will attempt to briefly consider, examine, review, and discuss some of the core considerations, etc.
1. How many similar properties do you own in the area? When asked why so many landlords refuse to lower their rents to attract tenants (especially when it comes to retail and office space), the answer is often because they don’t want to limit the continued price expansion of rents, towards the future! However, from a mathematical and logical perspective, we are going to assess what the impact of each month’s vacancy is and how long it may take to recoup these losses. For example, let’s say the requested rental price is $4,000 per month, for a specific store. A prospective tenant has offered $3,750 and the landlord refuses to push him. The difference, of $250 per month, would take 16 months, with the higher rent, to equalize. If it takes three months to rent, in the highest year, it will take 3 years to break even. Makes sense? Even if it did, it would only make sense, for someone who owns a lot of units, in the specific area!
two. Renting in a building with two to six units: If you are investing in a two to six unit residential building, what should be your priority? Should you simply focus on getting the highest rents in the area, or would you be better served by finding the highest quality tenants, who, if satisfied, can stay for a longer period? Every time you need to find a new tenant, there is another expense, that you don’t find, when keeping your existing tenants. I always strive to set realistic rents, from well-qualified tenants, and have been lucky enough to keep tenants, much longer than almost all other similar places, in the area.
What is your philosophy and pricing policy? Can you afford a prolonged period of vacancy? How much have you set aside for reservations? Can your cash flow afford it? Does it make sense, relative to how long it takes to make up the loss?
