Which is More Important to Rental Property Owners: Getting the Highest Rent or Most Income?

Lee Blackburn

Nashville real estate investors, like rental property owners everywhere, want to earn as much as possible in rent. Your property’s rental value impacts your cash flow, your stability, and your long term ROI.

However, asking for the highest possible rent will not necessarily deliver the most income. In fact, overpricing a home can lead to a more expensive problem: vacancy.

Should you charge a higher rent than competing properties, or keep your rental price competitive to find a well-qualified tenant quickly and earn consistent income?

Financial Risks and Vacancy

Smart investors focus on their annual income, not their monthly income.

It’s tempting to check your monthly income and wish for it to be higher. But, instead of focusing on that month to month income, put your energies towards your year-end profit and loss statement. For a long term investor, that’s far more important than what your monthly rental payment has the potential to be.

There’s a steep financial risk when you’re holding out for an extra $50 per month in rent. If it takes you an entire month or even longer to rent out that property, you’ve lost a lot more than the $600 per year you would have earned with that extra $50.

If you haven’t budgeted for vacancy, you’re facing a risk that’s even higher. The key to earning money on your rental property isn’t necessarily pricing it at the highest end of the market range. The key to earning money on your rental property is consistent rental income and low vacancy rates.

It’s important to budget for at least a few weeks of vacancy every year, assuming your tenant is going to leave at the end of the lease term. If they don’t leave – that’s even better. But if they do, you have to be prepared for that gap in your cash flow. You don’t want it to be longer than it should be, and that’s a good argument for keeping your rents competitive and not too high.

Marketing Your Nashville Home for Income

Marketing is also a part of keeping vacancy loss in check. It allows you to focus on long term income. A competitive rental price will help you market your home. If you’re asking $1,800 a month and all the properties like yours are asking $1,500 – marketing will be a serious challenge.

Work quickly when you’re advertising your property online, scheduling showings, and communicating with prospective tenants. Provide professional-level photos in your listings, offer virtual tours or self-showings so people can view the property on their own schedules.

Offering incentives is also an excellent way to avoid vacancy and get a well-qualified tenant in place quickly. Perhaps you can offer free online rental payments for the first six months or internet service or home security. Be creative and flexible, and your property will stand out from the competition in the marketplace.

Increase Retention and Reduce Turnover Loss

Turnover is just as expensive as vacancy. A good way to lose a high performing tenant is by increasing rent dramatically at renewal time.

Most tenants expect their rent will go up a bit every year. But, you don’t want to make unreasonable demands. An increase of 10 or 15 percent might earn you more in monthly rent, but it’s going to hurt your overall income. Why? Because your good tenant will move out, and you’ll have to pay for turnover and maintenance and a whole new leasing process.

The answer to earning more on your Nashville rental property isn’t necessarily charging more in rent. The answer is to place great tenants, retain those great tenants, and ensure your vacancy and turnover days are kept to a minimum.

We’re always happy to tell you more. Contact our team at Omni Property Management for any questions you may have.