Determining the rental price of your unit is a key factor to attracting the right tenants, and having it ready for showings will ensure that your unit leases quickly and for the highest rate possible.
Like in a sales transaction, correct pricing can make or break your listing. When it comes to rentals even the smallest adjustment can make a big difference. I have seen rental listings that would sit vacant with very little showing activity, and sometimes all it took was a $50 or even $25 dollar price reduction in the monthly rent amount to move the needle and start getting interested applicants. The monthly rental price in the leasing market can be very sensitive. It will be your job to help the owner discover the best price for their unit.
Getting the Price RIght
As a real estate agent you are probably familiar with providing home sellers (and buyers) with price analysis reports often times called a CMA. Most times this is done before a listing agreement to help a home seller understand how to effectively price their home for sale. A rental listing is very similar, except instead of using data on homes that have recently sold, you are using rental data from homes that have recently been leased. Unfortunately, finding this information is not always as easy as when you look up sales data. It is more common for there to be a larger database of sales prices than there are rental prices. Many times a lease transaction is not done through the MLS system and seldom are they recorded in public records, so it might take a little more digging on your part to determine the best price. But do not fear, because nowadays there are more and more software solutions that can help you with your rental pricing strategy. One of my favorite tools is a website called RentOmeter.com. This is a freemium type of web based software that is very helpful when it comes to pricing your rentals. They focus specifically on aggregating rental data based on recency and location to determine an accurate range of potential pricing. Clearly, like any home, whether it’s for sale or for rent, the condition and the location will play a major factor into your analysis, and when it comes to rentals, there can be drastic differences from one house or apartment to another, even if they are in the same neighborhood and sometimes even the same building. Tenants will often have different priorities than homebuyers. The outlook on their budget is different and their needs may differ as well. When pricing your units, visit the property and inspect the unit. See what the amenities are and what the condition the unit is in. One tenant may not care that the kitchen is dated as long as there is in-unit laundry, where another tenant needs to have granite countertops and stainless steel appliances, even if they have to walk 3 flights of stairs to get to a shared laundry room.
The main factors that will influence a rental unit tend to be, updates and condition of the unit itself. Laundry facilities (in-unit or shared), parking, and pet policies. Of course there are plenty of other factors that may go into the tenants consideration, but through my experience, these tend to be some of the top factors.
Pets or no Pets?
Let’s discuss the influence of pet policies when it comes to leasing. Ultimately it will be up to the owner to decide if they want to accept pets. However, when possible I always attempt to get owners to accept pets. Here’s why; many people have pets. A large majority of renters have a dog or cat. So when you allow pets you are opening yourself up to a much larger pool of potential applicants, which is always good. Research has also shown that when people are allowed to bring their pets, they are more willing to settle in for a longer duration tenancy. They feel more at home and are more likely to to stay. Whenever you can reduce turnover it will save your owner money, and they will certainly appreciate that. The potential drawbacks could be things like pet odors and potential damage to the house or unit. However, this can be mitigated with pet rent and/or pet deposits. You would be surprised how many people are willing to spend an extra $40 a month on rent just so they can have their cat or dog living with them. We always recommend allowing pets. But you will want to have the owner “pet-proof” the house as much as they can. If possible make sure they have tile or hard surface floors that can be easily cleaned. If they do have carpets, you will want to make the sure the tenant is responsible for paying for a professional carpet cleaning upon vacating. Also make sure you have a provision against what are considered “dangerous breeds.” There tends to be a lot of controversy over what is considered a dangerous breed. For the purposes of this discussion, a dangerous breed is whatever the insurance company says it is. Because that’s the real purpose of the clause. If there were to be an incident, the owner could have a claim on their property insurance. Be sure that you help the owner remain in compliance with their policy. Always seek a legal professional in these matters as well. It will be worth it in the end.
Making updates that count
Updating the unit. I remember walking through a property one time with an owner after a previous tenant had bailed on him and we were discussing the plan for finding him a good tenant quickly. As I walked the unit with him I would point out certain things and mention that we should make some updates. I noticed the carpet was quite stained and I mentioned that some new flooring would go a long way. “No, I don’t want to pay for that he said.” Ok I thought, not the end of the world, a heavy duty steam cleaning might do the trick… Then I said; “We should definitely paint the unit – it will really brighten the place up and eliminate some of these wear marks on the walls and doors.” “No” he said again, “the walls are fine…” 0 for 2 at this point. Lastly, I opened the refrigerator to find it stained, dirty and smelling awful, well beyond being able to be cleaned. Don’t worry I told him we have a great connection for refurbished appliances at a very good cost. Again, all he said was, “No, I’ll just have it cleaned.” It was at that moment that I realized we would not be able to manage this man’s property. I now understood why he was getting trouble tenants and having a hard time renting his units.
Like a home buyer, a renter will want to have the best upgrades possible in their rental unit. They don’t have to be super high end. But everyone should have a nice clean place. Also, just like in the selling of a property, the best upgrades and updates to make tend to exist in specific areas. These areas are, kitchens, bathrooms, flooring and paint. However, when it comes to leasing, tenants tend to be willing to overlook certain things that someone who’s purchasing the home might not. But, it will always be a good idea to ensure the unit is clean, odor free and freshly painted. Depending on the price point of the rental it may not be necessary to have the granite counters or the highest end appliances, but it will be important to offer a clean and freshly painted rental. If the owner is not willing to invest in these basic necessities then that could be a red flag for you as a manager. The last thing you want is to work for an owner who is unwilling to do what’s necessary to ensure the unit is in good shape. Run far and fast from these types of owners.
Should you furnish your unit?
Another topic that may come up is whether to have the unit furnished or not. Many owners may have been living there and want to know if it’s a good idea to keep it furnished. It depends on a number of factors. If it’s a short term rental, then yes, it’s probably a good idea to have the unit furnished. It’s just easier that way if people will only be there a few months or less. However when it comes to longer term leases, such as 7 or more months at a time, I always recommend to the owner not to furnish the unit. For pictures and showings there can be some benefit to having a home that’s furnished or staged even if possible. We have had rentals staged before, but these were for very high end properties. But what we have found though is that most of the time, for a long term rental, it is best to provide an unfurnished unit. It has been shown that when people are bringing their own belongings and their own furniture, they tend to feel more committed and will stay longer and take better care of the property. It’s probably due to the fact that if people are taking the time to bring their stuff and make purchases and invest in the tenancy, then they are more likely to feel at home and stay longer and be overall better tenants.
Summary:
- Use available software like your local MLS, and rentometer to help determine accurate pricing.
- Encourage owners to accept pets and prepare for them.
- Make updates to the most important areas of the unit, such as kitchens, bathrooms, flooring and paint.
- Don’t work with owners who aren’t willing to invest in their property.
