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MGMT Fee $195 Per Month - Leasing Fee Only $495

MGMT Fee $195 Per Month - Leasing Fee Only $495

Lower The Rent or Stick to Your Guns?

So you have a great rental property in a desirable area that has just been completely updated, new carpet, new paint, all new appliances, new HVAC system, you get the picture. This thing is brand new. Your property manager ran the numbers and say you should be able to get $2000 a month in rent. GREAT NEWS!
The good news is it only took the landlord 30 days to turn the investment property over, and at $2000 a month the landlord will be able to cover the mortgage, taxes and insurance, management fee, and have a little money to save for maintenance.After 3 weeks on the market the property manager calls the landlord and tells them that they have a potential tenant that has great credit, and passed the property managers back ground, credit and criminal checks. The possible tenant is willing to move in on the first of the next month, only 7 days away if the landlord will accept $1900 per month.

Possible red flags? — Why are the tenants willing to move in so quickly? In this case the possible tenant has already relocated for a new job, and spent the last 30 days looking for the right area for their family.

What would you say? What are the reason you would say no? What are the reason you would say yes? What other info would you need to make the decision?

A Lot of landlords might respond with the following:

I just spent over $10K to get this unit market ready, and need to get as much as I can.

I need as close to $2000 a month as possible, because my mortgage, taxes, insurance, and management fee are more than $1900.

What are some other reasons?

Let’s say the landlords has the manager pass on the qualified tenant because the landlord needs the monthly rent to cover all expenses. Then in in 30 days we get the full asking price of $2000.00. per month. Lets run the numbers and see what is better.

For this example I will run the number for 2 tax years.

Example 1:

Tenant moves in on March 1st and pays $1900.00 per month. Lets look at these on a yearly basis.

Year 1 this tenant would pay $1900.00 per month for 10 months. Total income for this year would be $19,000.00

Year 2 this tenant would pay $1900.00 for 2 months and then $1995.00 for 10 months with the 5% increase in rent. Total income the second year is $23,750.00

Total income for this period is $42,750.00

Example 2:

Tenant moves in on April 1st and pays $2000.00 per month. Lets look at these on a yearly basis.

Year 1 this tenant would pay $2000.00 per month for 9 months. Total income for this year would be $18,000.00

Year 2 this tenant would pay $2000.00 for 3 months and then $2100.00 for 9 months with the 5% increase in rent. Total income the second year is $24,900.00

Total income for this period is $42,900.00

In Example 2 you would make $150.00 more over the 22 months time frame. Is this really worth holding out for $100 more dollars?

There are a ton of variable, like what if the tenant in Example # 2 said they felt that $2000.00 was the top of the market and they would not agree to a rent increase. Well you could let them move out and market again, or you could keep them at $2000.00. Here is how that looks.

Example # 1 $42,750.00

Example # 2 $2000.00 for 21 months is $42,000.00 total. A difference of $900.00 which is $750.00 less than example # 1.

My advice is if you have a good qualified tenant and they are offering a little less than asking price, run the numbers. If the math adds up take them. Trust me the math always adds up, and its better to be getting rent than the investment to not be making money.

In this scenario how long did it take to make up that missed RENT for the month of March? It took 19.5 months to break even at $1900.00 per month compared to $2000.00 per month.

That is almost 2 years to make up the cost of 1 more month to try and get the highest amount.

I know there are a ton of other variables and what if’s. Give me your thoughts.

BJ McKellar Real Property Management DC Metro 202-269-0303 2828 10th St. NE Washington DC 20017

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