PRICE LOW, RENT HIGH

People have an emotional response to money. They love it, want it, and fear losing it. Often markets are described in the terms of fear and greed. Price is not an objective value of the item. Rather, price is the perceived value placed upon an item by a subjective person.

We can also think of markets in terms of scarcity and abundance, or supply and demand. There are many times when we do irrational things with our money. For example, how many of us have bought the 1 gallon pail of ice cream because it is cheaper per ounce than the 1/2 gallon box of ice cream, only to have the gallon of ice cream crystalize in the freezer because we didn’t eat it fast enough? In the end, we spend more money per ounce of ice cream consumed by buying the 1 gallon vs. the 1/2 gallon. This is just a simple example, but if we took the time to examine the economic decision we make on a daily basis because of the emotions of fear and greed, we would be shocked by how emotionally flawed our money decisions really are.

Consider coupons, Buy One Get One Free, Loyalty cards, sales, rebates, 10 for $10, etc. All these gimmicks are not meant to save the consumer money. They are carefully planned strategies to get the consumer to buy more. With that said, how can a property investor use human emotion in their favor without being manipulative? First, we must understand what the emotions are and how to work with them.

Greed: This involves both tenant greed and investor greed. Often,investor greed takes the form of consciously over-pricing the rental. Investors begin thinking about how much more money they would make if they could just get the tenant to pay $100, $150, or $200 more per month. The prospect of making more money will eventually end up impacting their market perspective and will affect their decisions.

Tenant greed takes the form of finding a good deal. Tenant greed is the emotion that rental scammers use to fool their victims. By grossly underpricing a scammed property, the scammer preys upon the irrational greed of the tenant. The tenant will do irrational things such as giving the scammer their bank account information or even sending the scammer a money order because they don’t want someone else to grab this “awesome deal” before they do. They come to find their emotions have led them into the scammer’s trap.

When the emotion of greed causes a landlord to overprice a rental, they short circuit the tenant’s emotion of greed, and the tenant’s greed will opt for a similar property that has a lower price. As time goes on and more tenants pass on the overpriced property, the tenant emotions will turn to fear because of the length of time on the market. The property takes on a perceived stigma. Potential tenants will ask and wonder why nobody has rented the property for so long. They will build assumptions in their mind that will create confusion, and a confused mind always says no.  Now, the investor has not only lost the opportunity to use a tenant’s greed to make a buying decision, but they now have an uphill battle to overcome any other potential tenant’s fear of renting an undesirable property.  In order to overcome tenant fear and again activate tenant greed, the property will truly have to be too good to pass up. However, this means that the price will have to be discounted far below the market value in order to attract a tenant.

The sweet spot is to price the rental slightly below the market at the time you list the property. The successful investor will have to control their own greed so they can capitalize on the greed of the tenant. With the property newly on the market and slightly under priced, the prospective tenant thinks it is a good deal and decides to grab the rental before someone else does. Because the property rents quickly, vacancy theft is minimized. Because the property is seen as desirable, the investor is not left with a stigmatized property that must be rented at a steep discount.

What Clients Say

The Kattenberg Brothers have raised the bar for rental companies in this community. They provide a higher level of professionalism and have made a meaningful impact on our area.

Gregg Gohl
Gregg GohlBroker, Hegg REALTORS

I signed up with Real Property Management 4 years ago, and couldn’t be more pleased. I had never rented out any property before, and was apprehensive… after all this is our home! An example of their care… last Sunday our renters had a water heater blowout that flooded the lower level. As we do not live near our property, I made one phone call to Real Property and they handled it from there.  Had a plumber change out the water heater, had the carpet experts on the site, and even contacted our insurance people.  All done within 24 hours. If you are thinking of leasing out your property, I don’t know how you could do any better than Real Property Management.

John Hostettler
John HostettlerProperty Owner

I have worked with Josh and Derek for five years. They approach the rental management business with enthusiasm, energy and a desire to provide excellent client service. Josh and Derek know that quality management services will bring financial rewards to their clients which in return will bring success to their own business.

James M. Wiederrich
James M. WiederrichShareholder Woods, Fuller, Shultz & Smith P.C.