The Pitfalls of Setting Rent Too High: A Landlord’s Dilemma
As a landlord, determining the appropriate rental price for your property is a crucial decision that can significantly impact both your property’s occupancy rate and your overall profitability. While trying to get the most out of your rental property is important, setting the rent too high can cost you thousands of dollars in the long run. In this blog post, we’ll explore the risks and drawbacks associated with setting rent too high, and why finding the right balance is essential for a successful and sustainable rental business.
Key Takeaways of this article include
- Evaluating vacancy risks
- Limiting the pools of qualified applicants
- Turnover rates, limited Return on Invested Capital.
- Rent Control Laws in California
- Lease Renewals
1. High Rent= Vacancies
It’s important to keep in mind that tenants have options. Your potential tenants are shopping around Zillow and other sites looking for properties that they can afford. One of the immediate consequences of setting rent too high is the increased likelihood of extended vacancies. Prospective tenants are more likely to explore other, more reasonably priced options in the market, leaving your property unoccupied, until you find the right tenant. Extended vacancies not only mean a loss of rental income but you also incur additional costs for utilities, maintenance, and potential property deterioration due to lack of use. If your property is vacant for too long you must also keep in mind that there is a potential for squatters to help themselves into your home.
2. Limited Applicant Pool
High rental prices can significantly shrink your potential tenant pool. Most property management companies evaluate the tenant’s combined income to ensure that they are making at least 2.5 times the rent. With that being said, it is important to understand that many renters have budget constraints and will be deterred by high rents, making it challenging for you to attract qualified and reliable tenants. A limited applicant pool may unfortunately force you to compromise on your tenant selection criteria, increasing the risk of rental payment issues or property neglect. This could ultimately increase your vacancy rate.
3. Increased Turnover Rates
Even if you manage to secure tenants at a high rent initially, they will be more likely to move out once their lease is up, especially if you have the intent on raising their rent in accordance to AB 1482. This can result in increased turnover rates, leading to higher costs associated with advertising, screening, and preparing the property for new tenants. High turnover rates can also harm your property’s reputation in the rental market.
4. Negative Online Reviews
In the age of online reviews and social media, disgruntled tenants are not shy about sharing their experiences with the world. If your rental property is perceived as overpriced, tenants may leave negative reviews that can harm your property’s online reputation. This negative publicity can make it even more challenging to attract new tenants in the future.
5. Legal Consequences
In some jurisdictions, setting rent too high may have legal implications. Rent control laws and regulations exist in various places to protect tenants from exploitative rental practices. If your rental prices violate local rent control ordinances, you could face some serious legal consequences, fines, or even forced rent reductions.
6. Difficulty in Lease Renewals
Even if your initial tenants agree to pay a high rent, when it comes time for lease renewals, they may negotiate for lower rents or decide to move elsewhere. This uncertainty can make it challenging for landlords to predict their future rental income and plan for the long-term stability of their rental business.
Conclusion
While it might be tempting to set your rent as high as the market will bear, the risks associated with doing so can have severe consequences for your rental property business. Vacancies, limited tenant interest, increased turnover rates, negative online reviews, and potential legal issues are all pitfalls that landlords can encounter when setting rent too high. Striking the right balance between maximizing rental income and offering competitive prices in the market is crucial for long-term success as a landlord. Regularly reassessing market conditions and adjusting your rent accordingly will help you attract and retain reliable tenants while maintaining a profitable and sustainable rental business. If you are in need of a reliable property management company to assist you with establishing favorable rent rates, please don’t hesitate to contact us at Superior West Property Management.
Disclaimer: This blog should not be used as a substitute for legal advice from a licensed attorney in your state. Laws frequently change and this post might not be updated at the time of your reading. Please contact us for any questions regarding this content or any other aspect of your property management needs.
