A Property Manager's Guide to Making Smarter Decisions on Re-Renting

    One of the issues my business partners and I have debated at times has been whether to keep our rental prices at the max and risk vacancy, or to drop the rental prices to get tenants in as soon as possible. When having these debates, we all agreed that keeping the current tenants in was the best option (as the cost of turnover is always an expense within itself), but this was not always an option. As we have tried both of these approaches over time, we have come to approach this conversation not from an emotional/what do I think is best approach, but from an objective/unemotional/bottom line approach: what is the larger impact from a money standpoint. This, we have found, has made these decisions much easier and with much less argument.

    When we first started having these conversations, I was always a proponent of keeping the rent at its current price, as all I could think was, "we cannot lose that money!" As we started to take a more analytical approach, I have definitely changed my outlook. Let me give an example: It is currently mid-July and we have a property coming up for rent as of September 1st. The property rents for $1600 a month, the mortgage on the property is $1550 a month, and the current tenants have chosen not to re-rent. We have been advertising the property at $1600 a month for a few months now and have not had too much interest. Option 1 would be to keep the property at $1600 a month (hoping to make $100/month beyond the mortgage), but at this point risk at least a one month vacancy, costing us the $1500/month mortgage.

    Option 2 would be to drop the rent to $1500 a month (still running the risk of vacancy, but breaking even on the mortgage). Option 3 would be dropping the rent to $1450 a month, losing $50.00 a month to even up the mortgage, but greatly increasing our odds of getting someone in sooner and not losing an entire month. So here is where the math comes into play: Option 1- high risk of losing $1500 per vacant month, Option 2- medium to high risk of losing $1500 per vacant month, and.

    Option 3- low risk of vacancy, yet knowingly losing $50 per month (which only come out to $600 for the year). The numbers told us that it was economically advantageous to drop the price, knowing we would lose $600 a year, rather than the $1500 for one month. Looking at it this way, it made much more sense to drop the price and get the property re-rented sooner.

    While in an ideal situation we would have tenants re-renting at the $1600 a month price, or new tenants at that price with no gap in between, this is not always reality. Taking a look at the hard numbers from different perspectives and while keeping the 'big picture' in mind helped us to make solid, informed, and advantageous decisions about our business.