Have you ever wondered, why, we so often, see many empty store – fronts, immediately next door, to, fully occupied buildings? Why do some landlords, have far more tenant – turnover, and vacant apartments, than others? For the sake of this article, we will assume, all other things/ features, are similar/ equal, etc, so, we might fully examine, 4 basic considerations, a particular landlord’s rent philosophies, often impact. Owning investment property, can, either be, financially, smart, and valuable, or, a, potentially, risky proposition. This article will attempt to, briefly, consider, examine, review, and discuss, some things to consider, and evaluate.
1. Pricing: Some owners decide, their best strategy, is, to price, their rentals, as high, as possible, while others, prioritize the quality of tenants, etc, and might price, somewhat, lower. I have witnessed, stores, in great locations, remain empty, for prolonged periods, because, of the rents, while others, rarely are vacant! Proponents of the first philosophy, usually, proclaim, they do so, because of their belief, in the longer – term, future rent – rolls, will remain higher, by doing so. However, for example, if a store, charging $3,000 per month, remains empty for a year, how long, and how much higher must be charged, to make back, that $36,000 per year? Residential landlords, also have the option of pricing, at the highest – end, the middle of the market, or towards the lower end. If gouging tenants, is one’s goal, they must understand, it generally brings, more turnover, and eventual loss of rentals/ increased vacancies. A reality is, every time, an apartment, turns – over (one tenant leaves and another begins tenancy), becomes a significant expense for the owner!
2. Tenant quality: How valuable is the quality of a tenant? Wouldn’t you prefer quality tenants, who pay their rents, on – time, are reasonable, have good quality character, and take care, of your property? As an owner of several rental units, I have come, to realize, my ownership is far less stressful, than those, who only focus on getting, the highest rents!
3. Occupancy: When there is little turnover, and you maintain, near – full, occupancy, you will generally, have less stress, from being a landlord!
4. Cash flow: Calculate your rents, based on, a combination of your fixed/ known costs/ expenses, plus reserves for unoccupied apartments, repairs, renovations, appliance replacements, etc. When this is done properly from the start, you will protect having a comfortable, positive cash flow!
If you want to own commercial property, proceed carefully, wisely, and in a prepared way. Consider your options, don’t be greedy, and proceed, accordingly!