How to price new rental properties

Pricing of a rental property is critical in order to avoid prolonged vacancies and to reduce overall carrying costs.

When a new condo building comes onto the market, it is often very difficult to get the highest rent. This is an excellent and practical example of supply and demand. When a building is registered, suddenly 400 units all at the same address come onto the market. A percentage of the units will be owner occupied, some units will be for resale and the remainder will be investment/rental properties.

Consider you have just purchased new property scenario! Market research shows that similar units to the one you purchased rent for $2000 per month; however, what happens to that market research when 20 other rental units in the same building with similar finishes also appear on the market at the same time? Also, a new building in the same area may have an effect on your newly purchased investment. As a Property Manager, I see this happen repeatedly!

Investors are often slow to react hoping for more money and that “perfect” tenant when they should be ahead of the curve with a plan of action. Each situation should be reviewed and analyzed as a plan needs to be in place at the onset. How do you make sure your unit is rented, and not waiting around for a tenant.

As an investor, it is generally understood that people will spend money where they see value. In order to solve this problem, as an investor you will need to change your value proposition. This can be achieved by either offering more and/or asking for less. Your Property Manager will be able to guide you in the correct and most productive direction assisting with value proposition.

Several items that should be considered in order to bring more value to one’s investment include: adding blinds, painting beyond the builder’s primer coat and/or purchasing parking spaces, lockers and other incentives and features.

Another option that I highly recommend is a reduced rent! Initially, this concept is negative sounding to an investor; however, using the above mentioned example, I offer the following:

  • for each month a unit is not rented, ongoing missed income (lost funds) is occurring resulting in a loss of $2000 per month as per the initial example.
  • If the unit is rented immediately for a lower price at $1900 per month, you would collect $1200 less in rent during the first year.

As an investor, what would you choose to miss out on: $2000 per month or $1200 per year?

Hopefully the above ideas provide some insight into the process of pricing an investment property effectively.