Just as with any industry, the rental housing market experiences lots of changes — some occur rather quickly, others over longer periods of time. With that, investment property owners must be willing to make appropriate property upgrades, changes to rental rates, and sometimes be flexible on lease term lengths. In order to receive an optimal return on your investment, it is imperative that you're willing to not only keep abreast of market conditions and fluctuations but be prepared to work within those fluctuations — especially when it comes to the monthly asking price of your investment home. If a home isn't properly priced, there can be several negative effects that ultimately impact your bottom line.
Consulting a professional regarding the rental rate of your home and heeding their advice can be a great way to ensure that you're getting the most out of your investment. Here are some factors to consider regarding the current price of your home, ways to tell if your home perhaps isn't listed at the best price, as well as ways to determine what the asking rate should be.
Did You Make A Substantial Pricing Increase (Or Decrease) After A Major Disaster?
After the devastation of experiencing a major disaster, many investment property owners find themselves facing huge repair and renovation projects. Understandably, they may have needed to raise rental rates in order to recoup some of the money that was spent on those projects. However, over a year or more past the disaster, the market may no longer be supporting those increases. If you found yourself in that situation, it may now be time to make some adjustments. Also, take into consideration the price points of homes near yours that may have experienced similar damages — what have they done regarding pricing? On the other hand, if you decreased the rent after a major disaster in hopes of quickly finding someone to occupy the property, the next vacancy may be a good time to study the rental rates of comparable properties and see if yours lines up.
What Feedback Have You Been Getting from Showings?
Have you been getting lots of traffic on your property but no applications? Has the property received nothing but positive feedback? Prospective renters may like the features of a property and the area in which its located, but if they feel it is overpriced, they will be hesitant to even fill out an application. If nothing negative has been said about the home itself, you may be wise to assume that the rental rate is deterring applicants. A good way to determine if this is the root cause is to simply ask those who have viewed the property their opinion of the rental rate. Though this could seem awkward, prospects are usually quite honest when faced with this question. When working with a professional property manager, they can field this question for you and pass along the feedback in order to assist you in making decisions regarding pricing.
How Does Your Home's Pricing Line Up with Similar Rentals?
Another tell-tale sign that the pricing of your home may be a little off is that it doesn't line up with the pricing of rental homes around it. Is your home priced significantly higher or lower than the home next door? Is there a legitimate reason for the price difference such as extra bedrooms and bathrooms or recent remodeling? Though there are factors that could contribute to pricing differences such as square footage, number of beds and baths, and interior upgrades, typically homes in the same neighborhood that are of a similar caliber should be comparable in price. A tenant who rents your home vs. the one next door will have access to the same neighborhood amenities, be in the same school district and have the same commute to work, for example, but may choose the home next door due to a more attractive price or newer appliances and flooring. Remember, things like solid-surface flooring and stainless-steel appliances are going to draw today's renter in versus things that haven't been upgraded in a decade.
Consider the Time of Year Your Home is Vacant
In a market that can tend to be seasonal like the Wilmington area, the time of year that your home is available for new renters can have a great effect on the price it is able to pull in. For instance, a home that is available in June is much more likely to be able to command a higher rate than one available in November because the demand for rental homes is much greater in the summer months. If you find yourself with a home going vacant in the fall or winter and are having a hard time getting a new tenant, consider decreasing the rent a bit and signing a shorter-term lease. If you lease your home in December for a six-month term, the vacancy or renewal period will come up again in June. This will give you more leverage to either ask for a rental increase at the renewal period, or, if the tenant is moving out, you will have your home on the market during the busiest time of the year when investment property owners are able to get the higher rental rates. You may be thinking "but won't this leave me potentially going vacant in December if I sign another six-month lease?" The simple answer is no; once you reach the June renewal period, you can then offer a 12-month renewal or begin signing 12-month leases with new tenants, thus pulling yourself out of the winter doldrums.
There are many other factors that go into determining the appropriate rental rate for your property. Considering the factors mentioned above is a great way to make sure you're on top of things, as is keeping abreast of the goings-on in the real estate market in your area. In the Wilmington area, rental rates can typically increase around 3-5 percent each year. If you are looking to increase your rental rate annually or increase after a long-term tenant moves out, that is a good range to stay in.
If you are curious about what your home might bring in as an investment property or are concerned that your home isn't priced correctly, another great resource is consulting a professional property manager. Many companies are willing to provide consultations and give their professional opinions regarding the appropriate asking price of your home at no charge. Having the sound advice of a professional will give you the peace of mind you deserve as well as aid in bringing in the return on your investment that you need to stay in the black.
If you'd like to learn more about what your investment property might rent for, reach out to the experts at Sweyer Property Management today.