Beware This Financial Pitfall

[John Reagan Johnson]

I've been speaking to landlords recently and one of the main topics of conversation is "I want my rental rate to cover my mortgage." In a perfect world, that is what we all want. Goal of anything you do is to provide aid to your current situation. Unfortunately, we do not live in a perfect world. Let's say to cover your mortgage, you have to make your rental rate a couple of hundred dollars more than rental market value for your property. This makes you exposed to the biggest financial pitfall that comes with owning a rental property...vacancy time (the amount of time your property does not have a tenant).

Vacancy time is not advantageous to anyone involved at the property. Whether that is a self manager or a property management company. If that property is vacant for three months, then that is three months worth of income missed. Working with a good property management company can be advantageous because the owner's and property manager's interests are aligned. The more money the owner makes on the rental rate, the more money the property manager makes for their services. It's not a good business model to not make as much money for your clients as possible. So if you are working with a PM to manage your property, and they recommend a certain price that may be lower than you would like and not cover the mortgage, why do you think that would be? The answer is because they have their finger on the pulse of the market, and want to get your property rented as soon as possible. With the market in Nashville currently, everyone is looking at prices. So being competitive means coming in at market value, or maybe even slightly below to help you stand out from the crowd. At the end of the day, a good PM will want to eliminate as much vacancy time as possible. Real estate is a long game, so maybe you do not have the rental rate you want right now, but trust me, the market will level out, and you will eventually reach a point where you are cash flowing. If you are looking to cover your mortgage with the rental rate, but maybe the market isn't allowing for it, it is okay! You will eventually reach that point, but it is wise to not miss out on thousands of dollars just for an extra couple hundred dollars a month. Wanting those extra few bucks could cost you big time in the rental game. 

If you have any questions about this, do not hesitate to reach out!