Cash vs. Cashflow

It happens more often than any of us would like to admit, where we need to lease up a property but it cannot command the price we want, need, or expect.  In this instance many owners will hold on to the “bottom line” – the lowest number in their mind they are willing to accept, or can afford to accept.

In rentals, vacancies are all about cashflow, and not about cash.  Let’s explore an example.  Owner Bud Jones has a beautiful home he wants to get $2,500/mo. for in rent.  Maybe that is what his mortgage, any HOA dues, and management fee all total up at.  It goes out on the market at $2,495/mo. but sits.  Two weeks go by.

The property manager approaches Bud and suggests a lowering of the price $100/mo.  Bud is seeing negative cashflow if the price drops any further.  He instructs the manager to leave it at the current price for 2 more weeks.  After two weeks Bud relents and allows the property manager to lower the price $100 to $2,395, and the home leases up in two weeks.

Let’s look at the math.  The home was vacant an additional 4 weeks more than it could have been.  Bud lost $2,500 in rent during that time.  By lowering the rent $100/mo. Bud lost $1,000 over a 10-month lease.  Plus, the losses are spread out over an entire year rather than one month.

Conclusion: it is almost always better off to lower the price than to hold out for a fixed figure. 

Full Service Property Management developed a proprietary leasing system using the monitoring of lease traffic.  We have established minimum thresholds for interest in a property below which we have found we are just wasting time.  Above those thresholds we continue to enjoy high success rates for quick leasing.

Moral of the story: If your property manager comes to you recommending a drop in price…take it.  In a few isolated incidents the problem may be elsewhere.  But almost always adjusting the price will help us give you the cashFLOW you need.  It might hurt a bit initially, but you will be better off for it in the long run.  We can always raise rent to market rates at lease renewal.

Best wishes for a successful leasing!