Here’s my top 7 common mistakes when setting a rental price for your investment property that I see every day are.

Setting the price too high

Hey I am all for starting with a higher price and adjusting down if needed. In fact sometimes we’ve started with a high rental price and to the owners delight and my shock we’ve secured it. Yay. Aiming high is especially OK if a tenant is in place and you have a bit of time to feel the market. If after 7 days you’ve not had interest an adjustment needs to be considered. Something I see all the time which is nuts, is a landlord will hold out for say $600 per week with the property sitting vacate for 4 weeks.  When they really needed to adjust to $580 per week and place a tenant.

The maths simply works like this. At $600 a week vacant for 4 weeks the landlord has just lost $2,400. Compared to if they had rented the property in the first week for $580 PW. Over a 12 month lease they would have only lost $1,040, which is in fact a saving of over $1,000, compared to holding out for the extra weekly income. Is that clear as mud.

Setting the price too low

I hear landlords say a funny thing to me fairly often “We don’t want to advertise too low or we might get bad tenants”. Interestingly the opposite is true. If you advertise below market you attract quality tenants that want to look after the property and stay longer. A property too high attracts bad tenants because they know its high and are prepared to pay a premium to secure the property. Sounds odd, but it’s what happens.

The main thing to consider is that this is an investment and you need to maximise your returns. So renting your investment considerably below market, makes little sense. I’ve worked with landlords who came to us with initially the property being under market and over time increased it to a point where it’s become cash flow positive and they have then been able to afford to purchase another.

Setting a price on what you need

What a landlord needs to cover loans and other costs has no relation to the rental income achievable. Plus maybe what the landlord needs is less than what rental income is achievable. Like our landlords who we’ve been able to turn into cashflow positive investments through consistent rental increases.

Setting a price on what friends say

I hear this too a lot “Oh a few friends have said we should easily get $xxx a week. It’s funny how many unqualified people seem to think they are experts in real estate. Recently I had to go to the hospital and stay over night. They did loads of test and as I write this they still need to do more. So my health issue is being reviewed. It would be silly of me to discuss with the doctors what I think is wrong with me. Twisted bowel, cancer, torn bladder, appendicitis. I have no idea nor am I qualified to have an opinion on it, other than how I feel. Same with property management & rental prices, people not qualified should really not have an opinion.

Not listening to the advice of your property manager

This is what we do for a living. Sure some property manager aren’t very good. But the good ones really do know what they are doing and really do care about their landlords. Listen to their advice and their professional recommendations, please.

Comparing your property with different properties

I had a client who wanted over $500 per week for their property, because they had seen another property nearby that we advertised for $550, which was much older. They assumed their investment property should easily get over $500 per week. What they didn’t put into consideration is that the property they saw had a large 3 bay shed, was on over 1,000 sqm of land but also had dual living with a 2 bedroom self contained studio under it. At the time our closest comparable was $470 PW which they were not too happy to hear about. In the end we marketed it for $490 per week, but with little interest.

Not Increasing at end of lease

In the past I have seen property manager increase rent by $5 or $10 a week and sign another 12 month lease. Do that 5 times, over 5 years your investment return has only increased by $50 a week. Yikes.

What’s smarter is to do an end of lease comparable market analysis and then adjust the rent to market value. This alone is the biggest trap I see landlords fall into. If you have a property manager suggesting $5 or $10 increases you need to ask questions to get some clarity around that. Sure we do that sometimes & sometimes we recommend no increase, but it’s based on research not just how we feel on the day.

Not increasing for years

Similar to above. When we take over a management the biggest thing I see is the landlord has not had any increase for years and the property has been under rented by anything from $40 per week to as much as $150 per week.

Additional Factors to Consider While Pricing Your Property

Are you renting out your property? There are several factors to consider when you wish to ensure the best results for the property. One of the primary concerns is to price the property right. The price of the rental property should be set right such that you remain in profit in the end. Moreover, the price that you set should also be just & feasible for the tenants at the same time.

There is no denying the fact that pricing your investment property is an overwhelming task. If you are finding it difficult to ensure the same on your own, you can take help from a reliable property manager for the same. A property manager or a reliable management company can help you set the price accurately as per the market trends.

When you wish the price to be right, it is important that you should refrain from some of the common pricing mistakes out there. Here is an insight into the top common mistakes that you should avoid while setting a price for the rental property:

• Relying on Comparable Online Properties: We live in a digital era. As such, for every task, we tend to take reference or help from the available online sources. The chances are that while deciding on the price of the rental property, you must have made an online search for the same. Relying too much on the online sources can be tricky at times.

Online sources can indeed serve to be a great place to get an idea of the overall worth of the real estate property. However, they might not always be accurate at the same time. This is the reason why you should refrain from relying significantly on comparing online prices all the time.

• Marketing Overestimation: It is important to note that profit fluctuations are quite common in the real estate market. The price for which you rent out the property might be less in profits to that of the purchasing price of the property. Therefore, you should aim at avoiding market overestimation at all costs. The rental price of the property might not always reflect the investment or purchase price in the ongoing real estate market trends.

• Factoring the Cost of a New Home: Are you looking forward to purchasing a new home? While pricing the rental property, you should not factor the overall price of the new home. The listing price for your rental property should not reflect the amount of money needed to purchase the next property. The rental price for the property should be relevant –whether you are earning profits or not. Your current financial situation should remain irrelevant to the potential tenant of the property.
• Not Paying Attention to the Current Rental Prices: In the real estate market, it is always imperative for you to follow the latest market trends. This holds true for the pricing factor as well. The rental price might vary from one investor to the other. It is important to gauge the right market value.

You should arrive at a price conclusion that draws the attention of the potential tenants. Therefore, you should not assess your calculations on what other properties list at. Instead, you should focus on the prices that they have achieved effectively in the given market. When you hire services from a professional property manager, he or she will have access to the right market information. As such, the manager will be able to provide the right guidance to the investors while determining the right rental price.

• Not Regarding Online Search Engines: It is believed that 9 out of 10 tenants would carry out an online search to come across the right rental property in an area. Therefore, it is vital to use the online search engines while setting your rental price.

Most of the property search websites are known to enter the price range to integrate the respective search options of the potential tenants. Therefore, you should analyze the available price range online to list your rental property on the given portal. This is wherein accurate pricing of your rental property would play a major role.

• Getting Too Creative: It is quite easier to decide on some round number. This is with respect to the pricing of the property. Your rental property could possess distinguishing characteristics to draw the attention of the tenants. However, unless you decide on the right price, it is of no value. Therefore, you should not aim at being too creative with the prices on the pretext of gaining more profit. It is the best decision to stick to simpler figures while leaving the task of creativity to the professional team.

Make the most of your rental property to earn profits by pricing it right. As such, you can get more prospects when you set the rental price right.