If you have rental properties like I do, it can be tough to decide what to charge for rent. Most landlords want just enough to cover the payment, taxes and insurance while others try to extract every last dime of profit out of their properties. So what's the best rate to charge? For myself, I've discovered that it is most profitable for me to charge about 10-15% less than the going market.
Not charging top dollar for my rental properties means that my properties are always continually occupied, compared to higher priced properties that sit vacant for weeks (or months) at a stretch. Avoiding vacancies by charging below-market rent increases my over all rental income and prevents incurring additional costs such as these:
No interim costs
Even an empty house costs money. Utility bills, monthly HOA dues, yard care and pool care are a few examples of costs that continue to accrue at the landlord's expenses. A house that sits vacant for a month or longer will also require a second cleaning before the new tenant moves in to get rid of dust, cobwebs, calcium rings in the bowl and so on.
No utility transfer fees
It costs money to transfer utilities out of your former tenant's name into yours. Even with a landlord utility agreement, the cost still runs between $10-20 per utility. A seamless transfer from one tenant to the next means that landlords can avoid having to pay these transfer fees.
Less chance of plumbing problems
It only takes two weeks for toilet paper to dry in the sewer lines which can result in blocked pipes once the system is back in use. This can be avoided by visiting the rental every few days to flush the toilets or avoiding vacancies.
The longer a house sits vacant, the higher it is at risk for vandalism, theft, and graffiti. While my neighborhood is relatively crime free, we live near the college and vacant homes here quickly turn into a dumping ground for old TVs, sofas, and other bulky waste. Disposing of this junk becomes the property owner's problem which can be expensive.
Happy tenants = less damage.
Tenants who know that their landlords aren't extracting every bit of profit out of a rental tend to be happier tenants who pay promptly, take care of the house during their tenancy, and leave the property in better shape than when they moved in. Not only will the house show better and rent faster to a new set of tenants, a landlord avoids costly repairs that can prevent someone from moving in promptly.
While all these costs may seem minor, they can add up to a hefty chunk of cash which can whittle away at your profit. Charging slightly less like I do means that my rentals are always occupied which saves me thousands of dollars in many different ways.
*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.
More by this contributor:
- Financials Industry
- Real Estate