How much to charge for rent?

[James Teutschmann]

In the range of your market rent, where do you like to fall? In my experience in real estate, I enjoy falling anywhere from the middle to even the low end of what our market/area will allow. I prefer picking from many potential tenants. If a great tenant knows they are getting a good deal they will likely stay longer and take better care of the property. Even thought you will "make less" each month, I imagine the savings of cap ex and maintenance for the lifetime of the tenant as well as the lower turnover rate is much more worth it. Maybe this doesn't matter as much in areas of extremely high demand.. Thoughts?

[Nathan Gesner]

Originally posted by @James Teutschmann:

In the range of your market rent, where do you like to fall? In my experience in real estate, I enjoy falling anywhere from the middle to even the low end of what our market/area will allow. I prefer picking from many potential tenants. If a great tenant knows they are getting a good deal they will likely stay longer and take better care of the property. Even thought you will "make less" each month, I imagine the savings of cap ex and maintenance for the lifetime of the tenant as well as the lower turnover rate is much more worth it. Maybe this doesn't matter as much in areas of extremely high demand.. Thoughts?

I disagree and think you're making a common Landlord mistake.

Too many Landlords have this brilliant idea to keep rents low. They assume the property will rent faster, tenants will appreciate getting a good deal and take care of the property, and they'll probably stay longer. My father-in-law practiced this method and even gave all his tenants a month of free rent every December as a Christmas present! When I took over management of his five rentals, he was losing over $1,800 a month by renting below market. I ended up kicking out three of his Tenants and two others left for other reasons. All five of them lost their deposits for failing to clean or make repairs. One of them - a single mother of one - was given free rent in December and then claimed she had to switch jobs and couldn't afford her regular rent in January, even though it was already $200 below market. My in-laws felt bad and reduced her rent another $300 a month (50% below market) for three months so she could catch up. Not only did she fail to catch up, she failed to pay rent and then I was hired to evict her. She had lived there for three years (They do stay longer!) and I was brought in for her last month before evicting. In her last 12 months, my in-laws lost over $6,000 in rent (unpaid or below market), almost $500 in unpaid utility bills, and cleaning/renovations were over $10,000.

If market rate is $1,000 and you rent for $800, you'll end up with a tenant that can only afford $800 and they'll treat your property like it's only worth $800. They won't appreciate that you're giving them a $200 break. In my experience, they're more likely to see you as an amateur and treat you accordingly. Meanwhile, you're losing $2,400 a year or 20% of your income.

I pick up new rentals every year from DIY Landlords. In most cases, they are renting below market and the tenants are not appreciative and not taking care of the property. In most cases, I have to evict the tenant, clean the property up, and raise the rent. The increased rent alone more than covers the increase in turnover. In fact, most of these owners end up putting more money in their pocket...even after paying my fees.