Setting Rents By Turnover
I recently read that the way you know if your rents are set correctly is by how frequently your units turnover. This author said that your tenants should stay an average of 2 years. If they stay longer(again, on average) you are not charging enough for rent. If they stay a shorter period of time you are charging too much. Has anyone experimented with this technique or run the numbers for their particular situation to see if this works for them? I can see where this might maximize your income, but I still wonder if it is best all things considered. For myself, it isn't just about money, it is also about convenience and aggravation. I'm not sure if it would be worth it to me personally to make a little more money and yet have a constant revolving door but again, I haven't tried this. If you could make 25% more than if you kept your tenants an average of 5 years it might be worth it. Unfortunately, this author didn't give any figures for how much difference it would really make. Who cares about optimizing rents if you only make $5/month more on a 2 year tenant vs. a 5 year tenant? Just curious.
I deliberately set my rents a little below market top. I have a typical turnover rate for my market, but it is due to job relocation rather than rent competition.
My longest term tenant has been with me for four years now and will likely stay forever -- actually I have two four year tenants. My vacancy rate over the past ten years for all my rental properties in this market has been under 2%.
I even have one tenant who rents from me because he gets a slightly higher rent for his own unit in the same condo complex. For me, the goal is no vacancy. I can get the top dollar in rent, but I will have a couple of units vacant for a couple of months each during the year. In the long run, my total cash flow will be less than I would have gotten with rents a little below the market top.
Remember you are in a business (landloarding). My rule is that I raise the rent each year by $10.00-$15.00 because utilities,taxes,and maintenance expenses rise. Usually the tenants will gripe but seldom do they move. Point out to them the cost and hassle of moving.
Hey,
To be very, very, very blunt...that is just stupid. Obviously, I don't have the article/book in front of me, but my guess is the author has never owned a rental in their life. It sounds like they read Adam Smith and a have a firm grasp of the Invisible Hands of economics, but failed to realise this does NOT directly translate in to real world use.
I have never had a tenant leave because of rent issues; it is always because they moved states or other non-monetary issues.