In Part 1 we discussed how rental price impacts occupancy rate and the impact that can have on annual cash flow. In Part 2, we’re going to explore how rental price impacts the quality of applicants.
Let’s say you have a rental property where the fair market rent is $1500 a month. If you list the property at $1600 a month, not only will you receive fewer applications, we’ll argue that those applications will be of lower quality.
Applicants with good credit and clean backgrounds do not have to overpay for a rental home. Since they can easily qualify, they will spend the time to not only find a well-maintained rental home, they will not pay more “just to get in.”
At $1600 a month, you’ll likely find that your applicants have credit or background issues. They want a decent place to live, understand they have issues, and are willing to pay more. It’s no different than a mortgage applicant who is willing to accept a higher interest rate because they have credit issues.
In some cases the extra cash flow may be worth the risk. That’s a call you have to make based on the total application.
Our recommendation is to price the home at market value to attract the largest number of quality applicants. One bad tenant can eat up lots of time and destroy a property. That little bit of extra cash flow just isn’t worth it in the long run.
Have questions or want to work with an experienced real estate team on purchasing or managing investment properties? Contact us at 214-227-6626.
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Originally posted at http://www.thebranchteam.com/wordpress/2012/01/23/investors-do-you-really-want-the-highest-possible-rent-part-2/
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