How to Raise Rents in a Tight Market

Topics: Landlording

In the world of supply and demand, when demand rises, prices follow suit, and when demand falls, prices fall too. Many products on the market are fungible. By that I mean that, among the same products of the same brand, they are indistinguishable from each other and the consumer doesn’t care much which he buys. One would think that rents would fall into the same category as other products, and be bound by the same market forces, but they aren’t. Just as there are differences in quality among brands, so there can be differences in the quality of a rental property.

Quality in a rental property boils down to condition, cleanliness, appeal, location, live-ability, and management. When demand for housing decreases, tenants choose to rent more appealing houses within the same price range. Landlord who go to extra trouble to make their houses appealing to potential tenants can steal tenants away from less appealing houses. The result is that the “losing” landlords compete on a price basis, and free introductory rents rather than on the appeal of their properties. This can be a mistake. It reduces cash flow and causes vacancies when the market tightens and the landlord tries to raise rents back to former levels.

On the other hand, the marketing of rentals by one landlord I know who manages over 200 better homes is based upon making the homes as appealing as he can. After insuring that the outside of the house and landscaping is appealing, he actually “stages” his houses with nice furnishings and furniture, appliances, fresh flowers, dining tables set with attractive dinnerware and cutlery. A CD player plays “elevator music” while the house is being shown. This costs extra time and money, but he fills his rentals very fast this way.

Another landlord with houses a little further down the scale owns a used furniture outlet. He stages his houses with furniture out of his store that a prospective tenant can buy on easy terms for as long as he rents the house. If he leaves for any reason, the furniture is repossessed. This fills vacancies rapidly and reaps extra cash flow and profit from furniture sales.

In any event, by focusing upon the houses appeal rather than on the amount of the rents, these landlords are able to command market rents and keep vacancies down to a minimum. You might try this too.

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