The Most Abused Figure In Real Estate

 

By Ray Reuter

I do a lot of property analysis for Members of REIN™… and for my own property search. Of course, all the number are important, after all, as an investor I’m basing my purchase strictly on the numbers, but there’s one number that gets abused way too often.

 

Any guesses? It’s RENT!

 

Far too often investors, especially new ones, will base their rental assessment on the wrong information. So, when I start my analysis for someone else I want to know where they got their numbers. Is this a guess, a best estimate, a shot in the dark? Or do they know their market?

 

RENT is probably the most important factor wouldn’t you agree? Without rent you don’t get paid!

 

I think we can all agree that major corporations, or any good business for that matter, spend a lot of time figuring out the right price. Our goal as savvy investors is to price our product properly. Too little rent and you end up feeding the property from your own wallet. Too high on the rent and you might lose all your gains by extended vacancies because you’ve priced yourself out of the market.

 

How DO you price your property?

Ladies and gentlemen…Know Your Market!

 

Step 1: Online Search

I see a lot of people miss out on opportunity here.

You see, unfortunately many landlords aren’t that great. They don’t market well nor do they do their homework. In fact, the majority of landlords fall into one of the following three groups:

 

1. The Default Landlord – These folks are the ones who didn’t want to sell their place for whatever reason, so they decided to rent it out. They do not know what they’re doing, they have never heard of the Landlord Tenant Act, and the thought that rental real estate was a business has never crossed their mind.
2. The Next Best Thing Landlord – These are the people who got into real estate for the wrong reasons, typically the ‘get rich quick’ plan, and now they’re stuck managing the place. Similar to the Default Landlord they have no clue what they’re doing.
3. The final group and possibly the worst group – The Downright Lazy Landlords! Sure, keeping the rent low makes vacancy less of an issue, but they’re certainly not maximizing their investment because they’ll attract a lower quality client every time, and they’re messing it up for the rest of us (well kind of).

 

Unfortunately AND fortunately this is the bulk of your competition.

So, check online, search for properties in your area as if YOU were the client looking for a place to live. Get a list of properties that are closely related to yours in the same area, take down their number and the asking rent…BUT don’t price your product based solely on your search. You will call them later.

 

Step 2: Talk to Your Power Team

Real Estate is not a solo gig. Sure, you can go it alone, but you’re just making things harder for yourself. In real estate we rely on a team of professionals to get our deals done and probably to manage those deals once they are locked up.

 

Further, if you’re doing it right, your team of professionals is good at what they do, AND they are investors themselves, why wouldn’t you talk to them about setting rent?

 

If you have a manager, odds are they manage other property in that area, so why not ask them about the going rates? Talk to your Realtor®, your broker and if you’re in a quality group like REIN™ , talk to fellow investors…with 2600 members across Canada I’m sure someone has property not far from you!

 

BUT (and not to offend any professionals here) don’t rely solely on their word.

 

This is your place, your product and you set the price based on the homework that YOU do…this is just one more piece of the puzzle.

 

Plus, be prepared to adjust your price if someone like your manager tells you that you’re out to lunch (and they have proof because no one is calling even with good marketing!).

 

Step 3: Visit The Competition

I know what you’re thinking “I live in BC but my properties are in Alberta, how am I supposed to visit the competition?!!?” Hey, I don’t care where the property is and where you are, this step isn’t up for negotiation.

 

The truth is that at some point you are going to be there, whether you’re closing on another deal, visiting your properties for your annual inspection, or whatever. Or if you live close then you have ZERO excuse. Remember that list you compiled during your internet search? Now is the time to call them up, check out their verbal marketing skills and schedule at time to visit their unit.

 

How can you price your product properly if you don’t fully understand what the competition is offering?

 

I recently visited the competition in my area and I’ve got two words for you – MIND BLOWING!

 

First off, I don’t know if the place had been updated or even maintained since it was built in 1970. We’ll start there, it wasn’t pretty. So I’m looking at the first unit and I have to say, I love what the guy did with the place. Not one, not two, BUT THREE massive flat screen LED TV’s (this is a one bedroom place by the way). There were two in the living room, one above the other and one on the kitchen table. I can only assume he likes to watch cooking shows.

 

But the real beauty was in the art –I’m not kidding, every square inch of wall in every room, and the majority of the ceiling covered in nudie posters. Think about it…you never have to paint!

 

This tenant is paying $700 for this one bedroom unit; the upstairs tenant pays $850 for a 2 bed. I’m floored! The place we just bought is newer, well maintained, on a great side of town, in a great location and the units are bigger, yet the previous owner has the whole place leased out at $795 for all 2-bed units.

 

Bottom line – what do you think these viewings did for me?

 

CONFIDENCE!

I got confidence in pricing my units. I have a much clearer idea of what the competition offers in my area and how I stack up. PLUS, instead of worrying about getting notice I’m freaking stoked when I do…why? Because I know when someone leaves, my rents are going up way more than the current 3.8% that BC allows!

 

So, start online, then talk to your team, but most importantly…visit the competition! Confidence is the key and having this kind of confidence makes investing so much easier.

 

Ray Reuter has been at the Real Estate Investment Network Ltd. since 2006. Ray has a Bachelor’s of Science degree in entomology with a minor in horticulture from the University of Kentucky. Ray’s work with REIN™ started with a focus on the Pine Beetle effects on British Columbia and Alberta real estate and he continues to follow the bed bug epidemic and how it relates to property investors. Ray started investing in real estate during college and continues to build and manage his portfolio.