I’m a big fan of buy and hold and the BRRRR method. That being said, if you’re going to go down this path, you will want to know how to increase the rent and the return from your rentals. Doing so encompasses all factors of property management. Leasing faster and to higher quality tenants will increase your return. Renting for a higher price and increasing the rent upon renewal will as well. And so will preventing maintenance problems before they come up, as well as increasing tenant retention. But how do we achieve all of these ends?
Well, I’m glad you asked. Here are 13 of the best ways, in this humble author’s opinion, to do so.
1. Improve the Appearance of the Front of the Property
It’s often noted that people make up their minds about you in seven seconds. In other words, you don’t have long to make a first impression. Neither does your rental. As I noted in my last article, simple aesthetic improvements such as window shutters, painting the front door, mowing the lawn, hedging any bushes or trees, replacing the mailbox or address numbers and the like can be hugely important. Here’s an example from that article of the same house with and without those aesthetic improvements:
All we did was mow the lawn, cut back the low-hanging branches on the tree in front, add a window box beneath the windows, paint the front door red, and add some bark mulch in the flower bed. A total expense of maybe $400. But that can make an incredible difference in both getting a property rented quickly and getting top dollar for it.
2. Quality Advertising
I’ve heard it said occasionally that “all we need to do to rent a house is put a sign in the yard.” I think this is the wrong approach. As my brother—who is our property manager—put it:
“If all you have is a sign in the yard, then you won’t have as much interest as if it was online everywhere. Fewer prospects means less demand, and when the supply stays the same, the only consequence is a lower price.”
That’s Economics 101 for you.
Put simply, renting a property with only a sign probably means you are under-renting it.
Furthermore, you want to take high quality pictures. If you can afford to invest in a top-end camera, it will pay for itself and much more. Just compare these two photos of this rather awkward house we own. One was taken from my old cellphone and the other from a high end camera. Which do you think is more likely to get that person scrolling Craigslist to call you?
Also, make sure to take pictures at about a 30 degree angle. Head on pictures make properties look very small, as the following examples show:
3. Make Sure the Unit is Well Lit and Smells Good for Showings
It should go without saying that you should clean a unit before showing it. But also, make sure the lights are on and blinds are open so the unit is well-lit when the prospect comes to look at. Dark rooms look smaller and less welcoming.
Also, put some air fresheners in the unit to make it smell pleasant. As the site Fifth Sense notes, “The sense of smell is closely linked with memory, probably more so than any of our other senses.” In other words, if the property smells good, then when the prospect goes home to debate which unit they want of the many they’ve seen, yours will stick out in their memory.
I even heard of one person who baked cookies before prospects showed up. Now that’s an inviting smell sure to get a signature on the bottom line!
4. Don’t Just Show… Sell
If you’re just opening the door and hoping the prospect will like your unit (or if your property manager is), you’re doing it wrong.
There are three great methods for selling during a showing:
If you’re doing the showings (or have hired someone to do them), you should using at least the first two and maybe the third.
Building rapport just means that you are friendly and open with them. Be genuinely interested in them. Ask questions and just shoot the breeze with them a bit. At the same time, don’t oversell or be pushy. People want to rent from people they like.
Anchoring occurs, according to Nobel Prize-winning psychologist Daniel Kahneman, “…when people consider a particular value for an unknown quantity before estimating that quantity.” (Thinking, Fast and Slow, 119-120).
In other words, if you say that you think the house is 1,200 square feet, you have anchored in the prospect’s mind that the house is around 1,200 square feet. If you ask them to guess what they think it is, they will likely guess between 1,100 and 1,300 (assuming your number is in the ballpark, of course). If, on the other hand, you say you think the same house is 900 square feet, they may know that sounds too small but will probably guess between 1,000 and 1,200 square feet. So their answer will change solely because of your anchor.
But anchors can be qualitative, too. So when I was showing houses, I would often say something like “I love this house” or the “the kitchen in this house is amazing” before opening the door.
Finally, in some cases, particularly in hot markets, it might make sense to use the rule of reciprocation. As Wikipedia describes it, “By virtue of the rule of reciprocity, people are obligated to repay favors, gifts, invitations, etc.” Psychologically, this works by people wanting to return a kindness (say renting from you) if you do something nice for them.
This may feel manipulative, but you aren’t going to convince someone to rent a turd from you if you give them five bucks. If you are renting a good property, what the Rule of Reciprocation does is set you apart from you competition’s equally good property. Putting such offers in your advertising will also help elicit traffic to your properties.
So, for example, in Eugene, Oregon, there is an oversupply of student housing, which we have a lot of. So we started offering a free pizza coupon to a popular college pizza shop just for viewing one of our properties. One year, we even offered concert tickets to local events being put on by an EDM productions company a friend of mine was partners in. There are lots of possibilities like this. Let your mind go wild.
5. Don’t Start Your Price Too Low… Usually
The basic principal with apartment rents is that if you have low occupancy, you can’t raise your rent. But if your occupancy is around 90 to 95 percent, then it’s time to increase the rents.
With houses, though, it’s much harder to know what to rent a place for since there’s only one of it. Yes, you can comp it out on Craigslist, Zillow or RentRange or you can ask the neighbors, but you can’t be perfect.
My recommendation is to approach renting a house from the perspective that you can fix a property priced too high, but it’s hard to fix one priced too low. If you under-rent a property, you’re stuck with it. But if you set the price too high, you’ll know quickly it’s too expensive because you aren’t getting any calls. Then you can quickly adjust the price downward. So start near the top of the range you think it can rent for.
Of course, you don’t want to go crazy with this. Every day a unit sits on the market means rent that is lost forever. And if you have a lot of vacancy or it’s in the middle of the winter and few people are looking for a rental, you should certainly be more aggressive. But in most cases, it’s better to start at the high range than the low.
6. Screen, Screen, Screen—and Then Screen Some More
A high rent is useless if you’re settling for bad tenants. Take these two scenarios with the same house. One tenant rents it for $600/month and stays there all year. The other rents for $700, but you have to evict the tenant and lose two months of rent plus the costs above the deposit to turn over the unit and the cost of the eviction. Here’s how it turns out:
With any sort of loan on that property, it would almost certainly have been upside down with Tenant 2.
Remember, it’s better to have a property sit vacant than to rent to a bad tenant. More than once, we’ve had a tenant do over $10,000 in damage. That kind of thing will ruin your cash flow for quite some time.
Make sure to check for evictions, their criminal record and credit, and get landlord and employment references. We don’t accept evictions nor do we accept felonies unless they are very old. The tenants should also make more than three times the monthly rent in income.
Finally, I would recommend turning over your employment and landlord references to AAA or another such company. There’s an incentive to hear what you want to hear if you check yourself, and that can bias your evaluation when talking to landlords and employers. Then you push through marginal prospects you probably should have declined. Third party companies couldn’t care less, so you don’t get a blurry image when getting landlord and employment references.
7. Always Raise Rent Upon Lease Renewal
As I once heard Dave Lindahl put it, “Tenants expect you to raise their rent each year, so don’t disappoint them.” These increases will at least keep your rent the same in inflation-adjusted terms and will often improve your bottom line.