The temptation to get as much revenue you can is understandable, but investment property ownership is a long-game and long-games can be lost by bad short-game choices.
“Many new condo apartment landlords suffer the greatest temptation as they face the reality that the rents they thought they could get on delivery aren't possible in the current market,” says Brandon Sage of LandLord Property & Rental Management, Inc.
“Many make the mistake of trying to pass that off to the tenant.”
As your partner in real estate investing, the property manager should be the best source of information when it comes to rental values.
“They should be someone you can count on to tell you what you need to hear which is not always what you want to,” he says. “Sometimes the rent you want is just too high - and that can make a property unprofitable.”
Unfortunately few Realtor agents specialize in leasing and so finding one that understands optimal pricing is difficult, and even then most agents are only there until closing and not around to see how the tenancy plays out.
“When you are growing your portfolio you will really want to have a firm grasp of fair market rental values before making a move,” he says.
Present-day renters have never been more informed, better connected or had more choice than now.
“There's no pulling the wool over their eyes but there is ensuring you know your competition and understand your customer,” says Sage. “Every time you list $50 above market you lower the odds in your favour, resulting in fewer enquiries that lead to fewer showings and fewer applications to consider. Then, when an application does come in, you can fall victim to ‘showing fatigue’ and settle for a less-than-desirable tenant, especially if the rental unit has been vacant for some time.”
You really have to ask yourself what type of person would agree to pay more for something. In the case of tenants they are often one or more of the following:
An "Unaware" Tenant
This is typically the tenant who did not do their market research or give any serious thought as to whether or not the property was a good fit for them – and usually places the blame for the failure to do their due diligence on anyone but themselves.
They can turn into a tenant from hell as they seek to get better value, often making unrealistic demands, only to leave after a few months, which contributes to your turnover.
An "Irresponsible" Tenant
This person doesn’t have a handle on their finances and over-estimates what they can afford, which means they will be unreliable in paying the rent.
This person also seems to bounce from job to job, without a steady income.
A "Predator" Tenant
This creature never intended to pay rent in the first place, and unfortunately will stay as long as they can and force you to fight to get them out.
They are the most hellish of the tenants from hell.
A "Desperate" Tenant
These tenants had no choice but to rent at the higher rate, often due to a time pressure or a need to be in a specific location, and will almost always not stay too long, adding to your turnover.
They will often capitalize on any chance to break the lease.
None of the above is ideal and each in their own way is a ticking time bomb that poses a risk to the cash flow needed to sustain the property, he says.
“Anyone who has been dragged through a hearing at the Landlord and Tenant Board can attest to how bad that hit can be in the worse of cases,” says Sage, “but even in the most benign of cases you'll be taking a hit from turnover costs, gaps between tenancies and commissions.”
Price fairly, market honestly, and act responsibly and you'll find your tenants are ones you'll come to know as fair, honest and responsible, he says.
“Tenants like that pay on time, stay longer and keep better care of the property, making for a better home for the tenants and a better investment for landlords,” says Sage.