Why Pricing a Rental Under Market Makes Sense in Real Estate Investing in Orlando

If you have been in the game of real estate investing in Orlando for a couple of years, chances are that you have had at least a couple of experiences with good tenants. At least, we hope so. A good tenant is one that pays rent on time, cares for the property, reports maintenance, and is in compliance with the lease agreement at all times. If you have a tenant whose lease is about to expire and you consider the tenant a “good one,” you may consider trying to keep them around. Tenants who renew lease agreements keep the rental income steady, save landlords from turnover expenses, and decrease vacancy rates. Below are some reasons that tenants may want to stay and renew a lease instead of moving into a new property.

Below Market Lease Renewals

No tenant wants to get a rent increase, but everyone knows that rent increases are a possibility once a lease expires. However, if a landlord raises the rent amount too high, a tenant may find that moving out and finding a new place, even if it is for a higher price, is worth it to have everything new and clean again. If those involved in real estate investing in Orlando see it through the tenant’s eyes, he is now paying more for the same property that he used to pay less for. Of course, there is the convenience factor of not moving. However, after any amount of time living in a property, there is wear and tear. If a landlord must increase the rent because a property is far below market rent, explain it to the tenant. Avoid increasing the rent amount by more than ten percent. A drastic increase is a sure way to lose a tenant. Instead, increase the rental amount in smaller increments, such as two or three percent. This will eliminate the shock factor and increase the chances that the tenant will stay long term. Hanging on to good tenants does not have to be an either/or situation. By showing them appreciation for how they care for your property, landlords can give gradual and small rent increases. 

New Listings for Under Fair Market Value

If your tenant does decide to vacate, think of it as an opportunity in real estate investing in Orlando to get a little bit more rent while still finding a qualified tenant. Again, this does not have to be an either/or situation. When pricing a new listing, landlords should not feel obligated to list it for the highest price possible. There can actually be some advantages to pricing a rental property under fair market value. There, we said it. Can you believe it? Can there really be advantages to not getting top dollar for a rental property? Below are some reasons why:

  • Tax purposes
  • Decreased vacancy days

According to the IRS, a property that is not rented for profitable purposes has tax advantages. It states that “if you don’t rent your property to make a profit, you can’t deduct rental expenses in excess of the amount of your rental income. You can’t deduct a loss  or carry forward to the next year any rental expenses that are more than your rental income for the year.” This means that those involved in real estate investing in Orlando can deduct rental expenses only up to the amount of rental income. For landlords that file a Form 1040, remember to include mortgage interest, any qualified mortgage insurance premiums, real estate taxes, and casualty losses. Claim all other rental expenses as miscellaneous itemized deductions. 

The fewer days that a property sits vacant, the better. Landlords should actively try to get and keep their properties occupied as many days as possible. However, listing a rental property at a sky-high price while waiting to see if anyone is interested can greatly prolong a vacancy. Listing a rental property at fair market price or a little bit under market can attract a great deal of attention and increase the chances of getting it rented more quickly. The more people who view the property, the better. Be strategic about your listing price. Listing it too far below fair market value can lead to a high volume of potential applicants who do not qualify. Clearly state the real estate investing Orlando requirements you are looking for in the property’s text description. If you find that many of the people touring the property do not qualify, it is appropriate to pre-qualify potential tenants over the phone by reiterating your qualification criteria.

How to Determine Fair Market Value of Your Rental

Fair market value simply means the going rate for rental properties in your specific area. The market value of rents can change depending on multiple factors including the economy, infrastructure development, and supply and demand. If you are looking to price your rental investment in Orlando and want to know your property’s market value, here are some things to consider:

  • How many bedrooms and bathrooms do you have?
  • What is the square footage?
  • What utilities are included?
  • Are there amenities that the tenant will have access to?
  • What is the parking situation? 
  • Will you allow pets or smoking?
  • Will the property be furnished or empty? 

All of these factors are used when helping landlords determine a rent rate for real estate investing in Orlando. Landlords should conduct a market survey and look at online advertising, newspaper ads, and yard signage to determine the other available options for tenants within the specified area. Look for properties with similar features to your own. Call the landlords or Orlando property managers to determine what is included in the rent amount and what amenities or utilities are included. Tell them that you are also a landlord and are conducting market research to determine a rent price for your available property. It is common for landlords to collaborate with each other and develop a correspondence so that each landlord can improve his strategy. 

What the Sale Price to Rent Ratio Tells You About Real Estate Investing in Orlando 

The price to rent ratio is a comparison between the annualized gross rent in a particular area to the price of houses in the same area. Using the price to rent ratio is a common calculation used by investors to determine if it is cost-effective to purchase a rental property. To calculate the price to rent ratio, take the median home price divided by the median annual rent. For example, in Orlando the median home price is $253,500, and the median annual rent is $17,220. The price to rent ratio is 14.7. In general, renting a property is preferable if the price to rent ratio is above 20. If it is less than 15, then buying a property makes more sense if the buyer plans to stay in the property long term. The good news for those involved in real estate investing in Orlando is that according to Updater, the majority of renters are Millennials and Generation Zers. Many of the people in these categories are not yet able to afford to purchase homes by putting twenty percent of the home’s purchase price as a down payment. Therefore, the need for rentals is still in high demand in Orlando and always will be in high demand as the population continues to grow. 

How to Get into the Real Estate Investing Market

For a long time now, the real estate investing market has been for millionaires. However, with the pandemic of 2020, many of the barriers to enter have come crashing down, making it more affordable for others to enter the market of real estate investing. Prior to purchasing a rental property, consider the goals of your investment. Are you looking to cash flow rental investments in Orlando or looking for appreciation? What neighborhoods are you interested in purchasing property, and are you looking for long term rentals or vacation rentals? When starting out in real estate investing in Orlando, make sure that you have enough money set aside for upfront maintenance costs and to cover vacant months. 

How Specialized Property Management Can Help You

If you are looking to fill a vacancy and want to list your available rental for the right price, contact our professional leasing staff. Our experienced team conducts market research before listing each rental so that we maximize profit while limiting vacancy days. Our property management services do not stop at leasing, but also carry over into all aspects of property management including move in and move-outs, lease signings, marketing, rent collection, lease renewals, maintenance, property inspections, and so much more. With more than 30 years of experience in the real estate investing market, we have answers to every question. Contact us today for more information about how we can assist you in just the leasing process or for full service property management contracts. Call us at (407) 682-3355.