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Mistakes Landlords Make When Setting Rent

Who denies my supremacy?  THIS is the rent price for this property!”  The landlord lashes out in anger and frustration, sitting on a wretched throne within the deserted kingdom.

The coat of paint on the walls fades, the vegetation in the front yard grows wild, the roof leaks, and the treasury is exhausted – but within this misery, the landlord awaits a potential tenant.

Time passes, age withers—the old landlord still awaits.  For far too long.

The investment opportunity that promised glitz, gold and silver now looks abstract. A rental property that once had everything to offer to prospective tenants, now grays into the wilderness of vacancy.

What went wrong, the landlord wonders…

A page from the fall comes whirling at the throne, the landlord reads – it’s the rental provisions set in stone. After reviewing it, the landlord finally realizes the reasons behind the ignored rental property.

It’s the mistakes that landlords are guilty of when setting the rent.

Setting Rent to Inflation – An Unfounded Basis of Progressive Rental Valuation

Many landlords tend to use inflation as a parameter for establishing a progressive rental valuation. Let’s say, if the existing rent is USD 300, they automatically increase it by x percent for the next rent period considering this the naturally-increased cost of  living.

This is not how the rental market, or in fact, any other market operates. There are many economical factors, besides inflation, which govern rental rates.

Landlords who haven’t been in touch with current market trends in vacancy, construction, and features; or renting a property to a new tenant after a period in which was previously occupied for a long time, are more susceptible to this kind of mistake when setting a rent. In some cases, the asked rent ends being too high as per the current trend. Or, in other cases, the rent actually ends up being undervalued.

An Uncompromising Attitude

Quite often, sometimes an investment property has to be rented out for less than of what it is actually worth. This could be due to many different reasons (something which we will discuss another day). However, due to the uncompromising attitude of the landlord, the stance over the demanded rental rate is not reviewed. They fail to realize that the temporary shift is just an interim need of the market, and a failure to compromise is nothing more but a direct hit to any potential ROI.

Setting Rent as a Gateway to Potential Recovery of Incurred Expenses

This is another mistake which many landlords are guilty of when setting a rental valuation on their property.  Just because you need USD 600 to cover the incurred interest expenses as part of the property investment, it doesn’t mean that the rent should be also be set at USD 600. This is not a mathematical investment equation. If the market trend deviates from it, there is no point in remaining insistent. You will have to lower it. And besides that, an investment property operates on an economic equation in terms of profitability.

Trying to get “paid back” by the property or the next tenant, means you are probably ignoring the market.

Setting rental valuation on your property needs extensive knowledge of current market trends and a prospective tenant’s actual needs. It is an opinion based science, which when corroborated with research and facts, delivers the glitz, gold and silver that the opportunity initially promises. For a rental property assessment and to establish a fair, profitable rental valuation of your property, feel free to contact us.

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