Why Making a Deal With a Renter is Better than Waiting for Top Dollar (in a Weak Market)

Summary

In this video, the speaker explains how rental income is affected by vacancies and negotiation on rent. Using a practical example, they demonstrate how adjusting the rental price slightly can help secure tenants faster, potentially leading to higher overall income than holding out for a full-price tenant. By considering factors like vacancy periods and long-term leases, the speaker emphasizes the importance of being flexible in a market with lower demand, offering valuable insights into how property owners can maximize profitability through effective negotiation and minimizing vacancies.

Takeaways

• 😀 Rent of $1,000/month leads to $12,000/year in rental income if the property is fully rented for 12 months.
• 😀 Vacancy reduces rental income—if the property is vacant for a month, the income drops to $11,000/year.
• 😀 Longer vacancy periods (e.g., 45 days) can significantly lower income, reducing it to $10,500/year.
• 😀 Discounting rent slightly (e.g., $950 or $900/month) can still generate higher overall income if it reduces vacancy time.
• 😀 Even with a rent discount, quicker tenant turnover can result in better financial outcomes than holding out for full price with longer vacancy.
• 😀 Long-term leases (e.g., 2-year or 10-year contracts) can offer financial stability despite slightly reduced rent.
• 😀 Offering a deal to prospective tenants (even with a rent reduction) can help lock them in for the long term, avoiding frequent vacancy periods.
• 😀 In a slower rental market, reducing rent slightly can be a viable strategy to ensure the property is occupied, increasing overall income over time.
• 😀 Renting out a property for $950/month could lead to an annual income of $11,400, which may be a better option than keeping the property vacant for longer periods.
• 😀 Understanding the effects of vacancy and adjusting rent or lease terms can be key to optimizing rental income, especially in less competitive markets.

Q & A

What is the total income if the property is rented at $1,000 a month for 12 months?

The total income would be $1,000 per month multiplied by 12 months, equaling $12,000 per year.

What is the impact on rental income if the property remains vacant for one month?

If the property remains vacant for one month, the rental income decreases to $11,000 for the year, which is $1,000 less than the ideal scenario.

How does a 45-day vacancy affect rental income compared to the full-year scenario?

A 45-day vacancy reduces the rental income to $10,500, which is $1,500 less than the full-year income of $12,000.

How does offering a rent reduction of $50 per month impact the total income?

If the rent is reduced to $950 per month, the total income increases to $11,400 for the year, which is higher than $10,500 if the property sits vacant for 45 days.

Why is it sometimes better to make a deal and rent the property immediately instead of waiting for a higher-paying tenant?

Renting the property immediately, even at a lower price, helps avoid a vacancy, which would lead to a larger loss in rental income. A fast deal reduces vacancy and improves overall income.

What would happen if the rent is further reduced to $925 per month for a two-year lease?

If the rent is reduced to $925 per month for a two-year lease, the total income would be $11,100 per year, which is still higher than the income with a 45-day vacancy at the full rent of $1,000.

What are the financial benefits of securing a long-term lease with a tenant?

A long-term lease, such as a 10-year commitment, provides stable, predictable income over the years, even if the rent is slightly reduced. It also avoids the recurring costs and losses associated with vacancies.

How does vacancy affect the projected rental income?

Vacancy reduces the projected rental income because the property is not generating any income during the time it's vacant. The longer the vacancy, the greater the income loss.

Why is it important to know your negotiation room when leasing properties?

Knowing your negotiation room allows you to adjust the rent price based on the current market conditions and the potential tenant's needs, helping to close deals faster and reduce vacancy periods.

In a less competitive rental market, why is it beneficial to reduce the rent slightly to secure a tenant quickly?

In a less competitive rental market, reducing the rent slightly can make your property more attractive to potential tenants, leading to a faster rental process and a reduction in vacancy time. This ultimately results in higher income over the long term.