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Is monthly rental rate reflective of property value and rental demand?

Posted by Mike Jordan on October 15, 2016
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Screen Shot 2016-06-15 at 4.36.17 PMWhen a home is marketed for rent, its curb appeal, neighborhood quality, and location all affect the base monthly rental rate. Some homes do not require incentives to attract tenants, and some do. The difference between a home that will rent easier than another depends on several factors.

Although location and home quality will set the general range that a property will rent out at, rental price is never set in stone. A good landlord will take advantage of the opportunity to squeeze out every bit of profit that a rental home can collect. Appliance availability and home structural/aesthetic quality are factors that can be adjusted to influence rental rate.

Monthly rental rate is directly reflective of property value, along with rental demand.

How can I increase rental rate?

When it comes down to moving into a rental property, many tenants will ask what they’re getting for their money. Sometimes, as investors, we stumble across homes with all the bells and whistles. Washer, dryer, fridge, stove, even a microwave! Consider situations like this a huge convenience, and each item will eventually become a bargaining chip for a higher rental rate. Tenants love the convenience of moving into a home that’s been outfitted with essential appliances. Washing and drying machines are among the most highly sought after appliances, and pre-owned, well functioning machines can be purchased for less than half of most rental’s monthly rate.

Should I always keep appliances in the homes?

Screen Shot 2016-06-15 at 4.37.17 PMIf you have more than one investment property in your inventory, it’s generally safe to say that they don’t all necessarily fall into the same category. A great home, in a great neighborhood, might not need incentives for attracting a tenant. A less desirable home, that’s struggling to get rented out, might become more competitive with the addition of an appliance that’s not usually offered. It is therefore worth considering the idea of transferring appliances from one non-performing home to another.

How can a rental rate be raised between lease cycles?

I once had a landlord who offered to buy my furniture at the termination of my lease. I was still in college, and had bought the furniture gently used. He therefore got a great deal on furniture, and I made some of my money back. Following my move out, my (ex) landlord marketed his property for about 30% above the price I was paying to live there. Within the year, the extra income he made from the increased rental rate had covered what he paid me for the furniture. It was a win-win situation. I didn’t have to worry about moving/storage furniture costs, and the attractiveness of my landlord’s rental property to his target population went up significantly.

Maintaining an aesthetical value

While it is not necessary to keep a home’s landscaping in great condition for a rental property to perform Screen Shot 2016-06-15 at 4.38.16 PMsuccessfully, the landscaping quality has a great potential to help sway the monthly rental rate in a certain direction. If a newly acquired rental home has attractive landscaping, keeping it up will have many benefits. Some landlords will ditch shrubbery for a low to no-maintenance substitute. When a tenant notices that the landlord truly cares about the home, it will incentivize them to respect the home a bit more. It might seem like an insignificant business cost, but a clean front yard is the first thing a person notices about a home, and this first impression can last a lifetime (or at the very least, a lease cycle).

It is therefore safe to say that the rent you are collecting today is not going to hold steady for the lifespan of rental property ownership. This can be good or bad, depending on the appreciation potential of the home. If you feel like the income from your rental home has taken on a stagnant status, investing in some appliances for the property can help bring in higher, long term returns.

If you have put the proper due diligence into your investment home before purchase, then an appreciation of the home value should be expected. An increase in value for a home should correlate with a general increase in the value of similar homes in the surrounding neighborhood. Subsequently, average rental rates should rise, which is good news if you plan to rent out for many years to come.

The most central factor in an investment property’s rental price point is the location and actual condition of the home. At the end of the day, larger room sizes and proximity to schools and city parks will always have a strong influence on rental rate, but a smart investor knows that there is a certain standard deviation to a rental rate that can be taken advantage of. While a landlord should never make a decision to purchase a rental home dependent on artificially raised rental rates, (via appliances and aesthetic improvements) being informed on how to utilize different avenues to increase rent is important.

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