Pricing a rental property is a very important decision that can greatly impact the rental owner's earnings over the course of a lease. But, pricing the property – choosing the initial list price and making price changes based on interest from renters – can be stressful for many owners because there’s a fair amount of the mix of science and art involved. In this article, we'll illustrate the three most common strategies we see owners utilize along with their pros and cons.
First, let’s start with a scenario where you already know the market rent range of your property.
Need some help determining the market rent range? Request an estimate from Nomad to view our estimate along with other 3rd party estimates in your portal. And check out other articles if you want to understand approaches to pricing your property to perfection.
Suppose you start leasing your vacant home on January 1st and the likely market rent for your property is anywhere between $2,400/mo and $3,000/mo, with a midpoint of $2,700/mo. Which strategy is the best fit for your goals?
- Strategy 1: Start at the midpoint of $2,700 to find a healthy balance between monthly rent price and vacancy
- Inquiries: you get a manageable amount of interested renter inquiries each day
- Tours: you have a trickle of tours to interested renters in the following 1-2 weeks.
- Price: you may not get enough interest as quickly as you want so you may drop price to $2,650
- Applications: you get 3 applications and 2 sets of applicants have passed screening
- Vacancy: you have a lease signed that starts on January 15
- Tenants: the tenants you select will pay full price, move in soon, don’t have many requests that you’re not excited about (eg lower rent, later move in, more pets than you wanted, requested changes to the property)
- Earn: $30,577 from Jan.1 to Dec 31.
- Strategy 2: Start at the low end of the range of $2,400 to minimize vacancy and time spent marketing
- Inquiries: you get a high amount of interested renter inquiries each day
- Tours: you host a lot of tours to interested renters in the following several days
- Price: you have plenty of interest so don’t need to adjust the price
- Applications: you get 6 applications, and most pass screening, because your property is a good deal
- Vacancy: you have a lease signed that starts on January 8
- Tenants: the tenants you select will pay full price, move in soon, perhaps even want a 2 year lease which will further reduce your vacancy, and don’t have any requests that you’re not excited about (eg lower rent, later move in, more pets than you wanted, requested changes to the property)
- Earn: $28,246 from Jan.1 to Dec 31.
- Strategy 3: Start at the high end of the range of $3,000 to ensure you get the highest monthly rent
- Inquiries: you get a low amount of interested renter inquiries each day
- Tours: you have no tours during the first 7 days and drop the price by ~$100 each week. Interest in touring the property slowly picks up over time
- Price: Once you drop your price to $2,750 there’s a clear sign of more interest, although some renters are deterred by how long the property has been listed already and wonder if something is wrong
- Applications: you get 1 application and they just pass screening (or perhaps just miss passing the credit or income portion). You have a tough decision to make - do you take the extra risk?
- Vacancy: you have a lease signed that starts on February 7
- Tenants: the tenants you select will pay full price, but want to move in 2 weeks after being approved and ask you to paint one of your rooms a different color. You don’t have a better option so you agree.
- Earn: $29,827 from Jan.1 to Dec 31 but incur the cost of painting and are taking more risk of delinquency with a lower scoring applicant.
This contrived example isn’t perfect but should give you a good understanding of the tradeoffs of each strategy.
At Nomad, we’ve seen that strategy 1 is the best fit for most (but not all) owners. We believe it's the most optimal pricing strategy for both owners and tenants. By setting a competitive price, owners can attract tenants quickly, minimize vacancy, and maximize rental income over the course of a year. Importantly, this strategy gives the owner more possible tenants to choose from and more opportunity to optimize other things during tenant screening that are important to them such as rent price (since some tenants will ask to pay less than list price), move in date, pet details, etc.
When you work with Nomad, we provide you with all the tools and services you need to safely and easily rent your home. We apply our thorough screening process and vetted lease to remove the non-payment risk referenced in these scenarios, along with other protections. We also provide tools that make ongoing management of your property easier for you.