Why My Friend Is Charging Less Rent Than She Deserves
I have a friend who owns a rental property. It’s actually right across the street from my rental house. Her rental is about 500 square feet bigger than mine and has an extra bedroom. Yet we get the same amount of rent. Why?
This fact has been bothering me for a few years now. Why is she accepting so much less rent than she could be getting? You might think, well maybe she has great tenants and wants to keep them happy. But that’s not the reasoning behind it because for one, her tenants aren’t great. They might be fine, but they aren’t great. And two, this is the rent she was asking before she even had tenants.
I’ve been reading a lot of books lately about how to become a millionaire. There is a common theme that if you want to be rich you have to ”think like a millionaire”. They often suggest you spend money in ways that make you feel rich. Hang out where rich people hang out. Eat where rich people eat. Shop where rich people shop. While that’s fine and good it doesn’t jive with being frugal. I don’t want to spend money to join a country club and eat at the most expensive restaurant in town just to feel the millionaire vibe. It seems like a total and complete waste of money.
So what does that have to do with my friend?
I think the reason she isn’t getting the rent she deserves is because she is a very frugal person. Very frugal. Which you all know is a quality I love so I’m not saying it’s a bad thing. But in this case I think it’s manifested itself into this problem. She chose her property management company because it’s the management company that she herself rented from when she was a renter. She was familiar with the company and it does charge very low fees compared to its competitors. Which is a perfectly good reason to use this particular company. However, because she is a frugal person the reason she rented from them in the first place is because they tend to charge below market rents.
When I was researching property management companies for my rental I looked into this property management company. All of their rentals were priced very low. I’m assuming they do that so they will rent quickly and they don’t have to spend as much on advertising. Less money spent on advertising means less fees passed on to the homeowner.
If she hadn’t been a frugal renter she would have gotten familiar with a property management company that charged high rents. Then her first thought would have been to hire a company that could get her the most rent possible. The higher income now would make up for those years of extra rent in the past.
I think her frugality is also causing her not ask for more rent because in the back of her mind she wonders “who on earth would ever pay market rent? Doesn’t everyone look for the best deal going?” Also, I think she was so focused on keeping costs down that she didn’t look at the other side of the coin, increasing income. I doubt she considered that perhaps a more expensive management company could pay for themselves by getting her more rent. So she just went with what she knows. A property management company that charges low rent for a low fee.
I think this is the perfect example of what the books are trying to illustrate. I don’t think you should join a country club if you can’t afford it but I do think it’s valuable to think from both sides of the equation. You should maximize your income while living frugally. Don’t let being frugal get in the way of making money!
Ashley
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Comments
A good property management company should help clients price their property according to market conditions.
You could start with a low rent, but increase it according to what the market will sustain after each lease expiration.
I always felt that a below market rent =should be used sparingly. It is an injustice to the tenant and owner. The tenant expects a reasonable level of service which can only performed if the owner makes a reasonable profit. The expenses do not stay static. The owner is also leaving money on the table and in the long run educes her profit.
It seems like there are always varying reasons for how landlords price their rentals. Sometimes I feel like they are simply out of touch with the market (whether high or low). But if her frugality is what keep her from making money, that seems like a bit of a paradox, doesn’t it?
sorry I disagree!!
your friend’s act is not because of frugality! IT’s because she’s cheap. and made an unwise decision. Frugality means getting big bang for the same buck. She didn’t. So, its not really frugal.
I see people falling into similar traps when they do freelance work. They don’t want to charge other people too much for their services because they themselves wouldn’t pay that much for it. The key is remembering that others are willing to pay more for a good product or service if it’s something they can’t do themselves.
Regarding the millionaire mindset, I fell into that when I was working in a luxury industry with wealthy clients. I agree it’s true to a point, but it also was a huge factor in racking up my credit card debt.
I have a rental property where I’m charging below market rates, but it has a great long term no hassle tenant in it. That is the only reason it’s below market. Besides paying the rent on time he keeps the place up well. Does almost all the repair work himself.
I once had a tree fall in the yard. It would have cost me $700 to have a tree company remove it. He said he wouldn’t have even called if he had a chain saw. I offered to buy him a chain saw. He got a brand new toy and I saved $600 bucks. This is the most extreme example, but I have at least a dozen more like it.
I’ll gladly give up a few bucks in rent for a tenant with solid character.
In my rentals I am more than willing to sacrifice a little profit for good solid long term tenants. In my experience you will be more profitable in the long term.
You know, I sometimes make the mistake of thinking that tenants evaluate apartments in the same way that I do — they want to live in the cheapest possible place that’s also in a good location.
But I’m discovering that many renters don’t want the “cheapest,” they want the most “luxurious.”
So now I’m renovating my units into luxury living. I’m putting in stainless steel appliances, replacing the carpet, adding a tile backsplash — I’m even putting a fountain in the yard. The location is awesome; prime location for a “luxury” rental.
To be able to make this decision, I had to overcome my bias toward what I want — a cheap place — and start creating a space that other renters want — an awesome place.
That is probably a good reason that your friend charges and gets less rent. I also tend to price toward the middle or low end but for different reasons. Most of the rentals that I have go from $900-$1000 per month. If I price at $1000, it may take one month to get that rate vs pricing at $950 which might rent in one week. Making up that $750 in lost income waiting for the $1000 tenant at $50 per month takes 15 months which means I lose money if the tenant moves out in 1 yr. Sometimes cash flow is more important than margin.