Landlord's Rent Philosophy/ Policy: 4 Considerations

 Have you ever wondered why we so often see many empty storefronts right next to fully occupied buildings? Why do some landlords have a much higher turnover of tenants and vacancies than others? For the purposes of this article, we will assume all other things/features are similar/equal, etc., so we can fully explore the 4 basic considerations that often influence a particular landlord's rental philosophy. Owning an investment property can be either financially smart and valuable, or potentially risky. This article will attempt to briefly consider, research, review and discuss some of the things that need to be considered and evaluated.

1. Pricing: Some landlords decide that their best strategy is to price their rentals as high as possible, while others prioritize the quality of tenants, etc. and may price a bit lower. I've seen shops in great locations sit empty for long periods of time because of rents, while others are rarely empty! Proponents of the first philosophy usually claim they do it because they believe that in the long run, future annuities will remain higher. But if, for example, a store that charges $3,000 a month sits empty for a year, how long and how much does it have to charge to recoup that $36,000 a year? Apartment building owners also have the option of setting a price, at the high end, mid-market or towards the lower end. If one's goal is to undercut tenants, they need to understand that this generally results in higher turnover and eventual loss of rents / increased vacancies. The reality is that every time an apartment flips (one tenant leaves and another starts tenancy), it becomes a significant expense for the owner!

2. Tenant quality: How valuable is tenant quality? Don't you want to prefer quality tenants who pay rent on time, are reasonable, have quality character and take care of your property? As an owner of several rental units, I have realized that my ownership is much less stressful than those who only focus on getting the highest rent!

3. Occupancy: When there is little turnover and you maintain near full occupancy, you will generally have less stress about being a landlord!

4. Cash flow: Calculate your rent based on a combination of your fixed/known costs/expenses plus allowance for unoccupied apartments, repairs, renovations, appliance replacements, etc. Getting it right from the start will protect you from having a comfortable, positive cash flow!

If you want to own commercial real estate, proceed with caution, wisdom and preparation. Consider your options, don't be stingy and act accordingly