Error 5 For New Real Estate Investors

May 8, 2017

SOMETIMES LESS IS MORE!!!

One of the most important rules of real estate investment is to operate realistically.  Know and understand comps in the area and expect to make a little less.  If you overperform that’s great, but always understand the worst-case scenario.  We often recommend that you list your property slightly under market rent. If you are unrealistic about the rental rate the home will sit vacant for at least a month.  If you by some chance do get it rented at above market rent the new tenant is probably not stupid, they are just desperate.  They are either not well qualified or they are using the home as short term alternative until they buy a home or rent something else.   This will cause more vacancy and now you have lost more than just one month’s rent.

If you keep your rent reasonable you will have many well qualified tenants apply and it will rent quickly.  You will avoid vacant time and the tenant will know they have a decent deal.  Tenants that think they are getting a deal, treat the home better and stay longer. 

If you rent your home for $2,000/month but it sits vacant for a month you missed on out $2,000.  If you instead rent it immediately at $1925 you have missed out on $900 of cash flow but saved $1,100 in vacant time.  Not to mention if the tenant treats the home better and stays longer the net increase from the $900 in lost cashflow is massive.  

It is critical to remember this is not a get rich quick scheme.  In residential real estate investment, you must keep the home occupied and with good tenants, regardless of the monthly rate.  Remember, SOMETIMES LESS IS MORE!

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