A.D. Cantelmo Property Management
Our Business is Property Management in Orange County California
What is the best way to make money on your Rental Property?
All investment property owners want to get more revenue from their
rental property. The question is, at what cost. As a Property Management
Company in Orange County Ca. I am always weighing the desire of the
Property Owner to get more rent revenue, and the cost of a vacant
property to the Owner. I always encourage Property Owners to think long and hard about raising the rents, while you have a good Tenant in the property. The question is, will it be more profitable for the property owner to wait for the property to be vacant before you raise
rents? There are caveats to that question and every situation is
different. First, lets look at the reason Raising the rent with a good
Tenant in place may be more costly to the property owner then the higher
rent brings in.
The Cost of Vacancy
For a investment property owner the best way to get the most from your
investment, is to have long term Tenants. I find The higher the turnover, the higher the
cost to the owner.
You have a property that rents for $2000.00 per month. Your lease is up
and you decide that your property is worth $2100.00 per month. The extra
$100.00 per month adds up to an extra $1200.00 per year. Great! If the
Tenant that occupies the property agree's and remains in the property at
the increased rent, no problem. The issue starts when the Tenant does
not want to pay the extra $100.00 per month and decides to move. Now the
extra income you were counting on may not be so Great.
Cost of getting a new Tenant
Once the Tenant
moves, you will have costs to get the property ready for a new Tenant.
Even if the Tenant leaves the property in good shape, there will be cost
to prepare the property for rent. Lets give it a conservative number of
$250.00. Now you have to get a new Tenant. The normal commission you
will pay to fill the vacancy will be 1/2 months rent. In this case 1/2
of $2100.00 is $1050.00. It takes on average 30 days to get a new Tenant
moved in, so you have lost 1 month in rent revenue. That cost is
$2000.00. The total cost of this vacancy is $3300.00. The total increase
in rent for the year is $1200.00. It will take you more than 2 years
to recoup the cost of the vacancy. That assumes you get a good tenant
that stays for that time period.
Now you may say that you can fill the vacancy for less then the $3300.00
cost. Lets cut it in half, that's still $1650.00. It will still take
you more then 1 year to make up for the loss in revenue.
Keeping your tenant:
If you look at those numbers, and believe me those costs are real, it
would seem to be much better to keep the long term Tenant at the rent
they are comfortable with.
You will make more money in the long run, and also save the hassle of getting a new Tenant.
If the Tenant has been in the property for a long period of time, and a
rent increase is necessary, it would be better to sit down and discuss
the increase with the Tenant and make sure they are wiling to stay with
the new increase. Maybe to make it easier on the Tenant making small
incremental increases over time will make it more palatable.
The key, is try to keep your Tenants for the long term and avoid
unnecessary cost. In the end, you will make more money on your
investment, and you will be much more relaxed as an investment property
A.D. Cantelmo Property Management Specializes in Property
Management on Orange County Ca.