In this episode Carla and Adrian talk about out how to price a residential rental property. This insightful conversation touches on how price not only affects the resident, the investor/owner but also the property manager.
Welcome to Canada's Property Management Podcast. Your number one resource for investing, managing and maximizing the value of your real estate assets. And now here's your hosts, Carla Browne and Adrian Schulz, Canada's rental property experts.
Adrian Schulz (00:18):
In today's episode, we're talking about out how to price a rental property. And Carla, before I get started, I have to take note that you and I both either flail our hands when we're talking, for those of you who watch the video, and I sometimes look at the screen or the camera as if I'm completely stunned and zoned out while I actually listening attentively. So let's just be aware of our hands and our eyes and our smiles.
Carla Browne (00:51):
I did watch the last clip and I was kind of like, why am I doing that? So I actually going to hold my desks today. So now I'm going to look like this rigid board, right. Instead, and I too. You tend really listen to what each other is saying. So I guess we find each other interesting. Nothing there. It's nothing wrong.
Adrian Schulz (01:11):
Yeah. There's the one benefit of our podcast. We find each other Interesting. So this is actually an interesting topic because it affects not only the resident tenant, the investor or the owner. And of course also the property manager, because property managers, in many cases derive their fee from the rent that is charged. So I think we have to be cognizant of that the rent or how to price a rental affects all three parties involved and let's get started correctly. How do you price a rental property?
Carla Browne (01:53):
Okay. So step one, do not go to CMHC. Let's just get that out right away. And I love CMHC. I love States Canada there's a lot of great information to glean from there, but they do not include the majority of the rentals, when we talk about the single family rentals, because they don't have that data intermix. So that's not where you can go. And the other factor to remember before we really dive in, is that what a property is advertised for does not necessarily mean what it's going to rent for. So sometimes people say, well, my neighbor has theirs listed at this for rent, or I saw one down the street. So just be careful of that. So I always say you have to look at what the competition is doing. So you need to look specifically in your area as well as you also need to look specifically in the price range that you're looking at.
Carla Browne (02:38):
So you can really see what you're competing against in your area. If someone's coming from out of province area might not mean anything to them, but the range we'll be looking at like the 1300, 1400, 2000, that might be really important. So then they're looking all over the city. So you want to look at that. A property management company is going to be able to go on some historical data and they'll know for sure what things are renting for and what they're getting rent for in today's market. So you're going to get a lot of information from there as well.
Carla Browne (03:06):
I always suggest people look at the competition, so you know what you're competing against and then price accordingly, but get yourself a bit of a range. So if I'm working with an investor, I will say, based on what we're seeing, your property will range from 1400 to 1600 or 1750. Sometimes we do psychology things like 1745. And then I say, you go high range. We have to be really careful on that because if it's not showing as the highest quality out of all the competition, that's going to be really hard. And if you go mid range, you're probably going to see the most inquiries. Then you have a bit more to choose from. And if you go low range, that's... I never tell someone to go low range because I'm always trying to maximize what I can for our investors. Right?
Adrian Schulz (03:52):
When you mention a high range, I think it's really important to point out if you're going to price your rental and there go the hands. If you're going to price the rental on the high end of the spectrum, you must assure that the marketing content, the verbiage, the photos, the video tour is in line with the price that you're requesting, because there is actually a level of expectation with today's rental consumer, that they want to see high quality imagery and explanations, et cetera. Whereas in the lower to mid tier, maybe that expectation doesn't exist to that scale, but it's growing, right? So being cognizant.
Carla Browne (04:36):
Yeah, you have to think like a tenant when you're pricing and that falls into how you're marketing, which is what really you're talking about, right. Adrian, and how you're going to present the property. And that's very very important if you're looking for high range and you're going to be the highest that they're out there looking at, you better present it that way. So there's that tip I said in a previous-
Carla Browne (04:59):
Remember, I've told everyone when you taking pictures, [inaudible 00:05:02] seat down.
Adrian Schulz (05:04):
Or actually I would argue in some cases don't bother with the bathroom photo, unless it's a nice bathroom, right?
Carla Browne (05:11):
This is true. This is so true. And then, you have to be willing to adjust a demand. So just because you ranged it for 1750, and now you have a tenant leaving, you can't just automatically think it's going to be 1750. It might be higher. It might be lower. And that is another one for investors to not quite get a grasp on and understand. And then I know there's one that you usually talk about and that's that sweet spot. So by really understanding what the market is doing in your current place of where you're trying to rent, and sometimes you get really specific to neighborhoods, you have to price accordingly. So why don't you tell our listeners about your... how you feel about finding that sweet spot when it comes to the rental?
Adrian Schulz (05:54):
Yeah. So the sweet spot for rent once you've analyzed what the local market is doing, what the market can bear, perhaps what some online reports can show you. The next step is to determine how fast do you want to rent the unit? And if you price it incorrectly, you could be vacant for much longer than you should be. And if you price it correctly, you will get the right number of inquiries that will lead to a rental application. And one thing I'm reminded of when we once talked about the three P's of filling your vacancy, I'm reminded of when the price of the rental may be on the higher end, but you get a prospect at the showing that you feel would make a great resident, but you feel that the price may be a little, but out of reach, there's some times really a neat opportunity to use that back pocket sales approach, which is, I may be able to get this discounted by $25 a month.
Adrian Schulz (07:09):
If I'm able to get that for you, would you be interested in applying for it right now, right here with me, right?. And just having that variable rent ability on as a sales closing tool, right? I found that to be very productive, but it's on a case by case basis. But bottom line is when you're setting the rent on your investment property, you really must consider how long are you willing to be vacant for? And I know Carla, you and I have talked about this. If I'm asking for 1300, right? But I could have a tenant tomorrow for 1275. Wouldn't I take the 1275 instead of being vacant for another month or two?
Carla Browne (08:00):
Great, because if not the month that you're missing out on, you're missing a whole 1275 for a whole month versus $25 a month for a whole year that you're probably locking this tenant into. So you're actually winning by doing that little adjustment. And another thing that investors really need to understand is that for the most part tenants go on and search on a range. So they, you very rarely do they go, I'm looking for a property on Smith street. They're actually looking for a property that's between 1500 and 1750, because they'll put some kind of a range there to see what they can get. So if you are going to price on the higher range, just be cautious that you don't out price of what the range of what that competition is. You don't want to go too high, because you'll miss out. We get a lot of calls into our office where someone's inquiring on a property.
Carla Browne (08:51):
And then in the conversation with our property manager, they'll say, but really I was really hoping for something that was a little bit less. So we often take those calls and we're able to flip them into another property. So we're able to retain the tenants, which is great for us, but we did lose them off of that particular property just because it was out of what they were looking for. So you have to be really, really careful prices everything. If you're not getting inquiries right away, you need to look at doing an adjustment. Bottom line, don't just sit there with no inquiries and say, well, I haven't found the right person. You will not find the right person. You'll be vacant for 30 days, 60 days, 90 days possibly. So just be careful, lots of inquiries, you can weed out and find the right person that way.
Adrian Schulz (09:33):
My last [inaudible 00:09:35] is, and we've done this personally on duplexes, triplexes and fourplexes is you can actually don't include necessarily parking in the rent because now you've got a lower entry point to market. And in the notes put that parking is an extra 50 or 75 of dollars, whatever it might be. But we have found that by in some cases, not every case, in some cases, by removing the parking out of the rent and adding it back in as an additional charge can really increase your lead flow, which you lets you be more selective in the quality and caliber of tenant that you're going to choose for that property.
Carla Browne (10:19):
Okay. I'm going to add one more tip on this one. I know we're getting a little long, sorry, listeners, but one more tip, because that just made me think of something as a lot of time, investors will say, should I just include the utilities in because then I'm making it more budget friendly for people who are looking at renting a property. And I a firm believer in no, do not include the utilities because as soon as you do, you lose control of the cost of those utilities and does a tenants then possibly not care if they have their friends over to do laundry because they're not paying for the water or they leave the lights. Unlike all of those little things can be an added cost. So I always say no, keep it out, keep the price down and let the tenant where they can. I mean, it's not always possible given the housing situation with up downs and shared units, but try to keep make it on the tenant's responsibility If you can.
Adrian Schulz (11:11):
I totally agree with you. It reminds me of two out of our three kids yesterday. They jumped in the shower together. They're just small kids and they end up playing in the shower with their lego and their cars. It's a mystery on how those toys get in there, but they end up being in that shower for 15 minutes. Right. Whereas my wife will shower in about 30 seconds. I don't know how she does it, but she does it. So yes, I agree with you-
Carla Browne (11:37):
Because she has three kids, she learned to really be efficient at all kinds of things.
Adrian Schulz (11:41):
Yeah. That it's true. She says I do everything under time crunch now. Now that's real property management.
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