The decision of whether a landlord should rent out his rental property more quickly for a lower rent or wait until he can secure a higher rental price depends on several factors, including the current rental market, the condition of the property, and the landlord's financial goals and abilities.
In a competitive rental market where demand is high, landlords may be able to secure higher rental prices by waiting for the right tenant. In other words, when tenant demand is higher, the chances of finding a qualified tenant to rent the property at the desired rental price quickly is higher. However, in a slower market, it may be more beneficial for the landlord to rent the property quickly at a lower rent price to avoid extended vacancy periods.
For example, if the landlord wants to rent the property at $1,500/month, but tenant demand is slower, the landlord may benefit by dropping the rent price to, say, $1,400/month. Here is how the math works out.
Assuming the property was listed for rent on January 1 at $1,500/month and the property stays vacant for 2 months but then rents on, say, March 1, the landlord’s rental income for that year (March 1 - December 31) would be $15,000.
Now assume that the landlord reduced the list price to $1,400/month in mid-January after the property was listed for a couple of weeks without securing a qualified tenant, and assume the property rented on February 1 once the list price was lowered. The landlord’s income for that year (February 1 - December 31) would be $15,400.
In addition to more income, the vacancy rate is reduced, and the property will be maintained with a qualified tenant during the tenancy. Tenant occupancy also eliminates the risk that a criminal trespasser will break into the home during vacancy, and other property damage risks are tremendously reduced, such as, undetected water leaks during vacancy.
Additionally, if the rental property requires maintenance or upgrades, it may be more cost-effective to rent it out quickly at a lower price rather than wait for a higher price and risk incurring additional maintenance or upgrade costs.
For example, say the landlord intends to spend $5,000 on property upgrades to increase the rent value by $200/month. In that scenario, it would take approximately 2 years for the landlord to recoup the upgrade costs with the increase in rent. That is, $5,000 cost / $200 rent increase = 25 months to recoup costs. If the landlord is low on improvement capital, the landlord may choose to delay the upgrade costs until he has sufficient capital to make the improvement. However, if the landlord intends to keep the property in his rental portfolio for over 25 months, he begins to realize an additional $200 in rental income for that property on month 26 (assuming rent value does not decrease during the relevant period of time).
Ultimately, the decision should be based on a careful consideration of all factors, including market conditions, the condition of the property, and the landlord's financial goals and abilities.
If you are a landlord and need to partner with a professional property management brokerage company, contact aDoor Property Management, LLC. We can help you with your property management needs and goals.