Less is More? Lower Rental Price can Increase your ROI.
The ultimate goal of any Tucson rental investment is to return more money than what you pay out. The normal reaction to choosing rental price is to maximize it to get the most rent. This in fact can be the cause of you LOSING more money.
99% of investors and property managers in Tucson, AZ believe in maximizing rents as the most important steps towards increased ROI. This could not be further from the truth. As this tactic is the exact opposite of what should be done to maximize your ROI (return on investment).
There are three main reasons of explanation and proof of why higher rents can decrease your ROI.
Vacancy is the #1 expense of a rental property. Most rental properties spend 28 days vacant each year. That is 1 months rent of income that is high negative hit against your ROI. The higher the rent, the longer a unit will sit vacant Even if your properties sits for 3 weeks it still is a killer to your pocket book.
LOWER TENANT DISCRETIONARY INCOME
Higher rents can consume a higher proportion of the tenant's discretionary income. This could increase the risk of default if tenants income is interrupted. Even a high medical bill or car repair could lend risk to tenant missing payment.
ATTRACT WRONG TYPE OF TENANT
Good tenants are frugal and fiscally sound. They budget their money, look for good values, and plan carefully. They search and look for good values and appreciate it when they find one. Tenants who are overstretched and not fiscally sound will reach and overspend. They make sudden and impulsive purchases. These trends do not stop when finding a rental home and when they secure a home. They are more likely to make financial mistakes that hurt their chances of making on time payments.
Ultimately the goal of any rental property investor is to find a quality tenant without comprising your bottom line. Lower rent with a higher value for the tenant can attract those great tenants and min