Many savvy investors realize how essential real estate investing might be, as a component of one’s overall strategy, etc! Some get involved as partners or investors in larger projects, where they depend on others to make the right decisions. Others, however, prefer to make their own decisions, and invest in smaller projects, where they become responsible for decisions and strategies. Before getting involved in an Income property, one should carefully consider, which strategy, he will follow, in terms of revenue flow, pricing, etc. Before doing anything, an individual should carefully examine a potential property, in terms of the anticipated return on investment. This means when you look at the price paid, what percentage will you receive, based on the revenue flow, minus the continuing expenses (such as mortgage interest, taxes, utilities, insurance, etc). Different people have different perceptions and ideas, in regard to what that percentage should be, but I believe one should aim for a net 6%, to make the project worthwhile. Let’s evaluate four key components.
1. Know your market: Pricing is not merely picking some number out of a hat, and automatically, receiving that total! Rather, one must evaluate what the competition and marketplace/ conditions, indicate as the realistic range. Consider the ramifications of which segment of the range you opt for! Pricing at the upper end might provide more revenue, but there may be certain risks. Pricing too low, might not generate sufficient revenues. Sometimes, the middle range will make sense, but not always!
2. Option One: Pricing at the upper end of market: Wouldn’t it be great if we could simply charge the highest price, and get the most revenue? However, one must realize it might not get the desired results, or if it does, may take longer to achieve. When that happens, a vacancy might exist, so one should always use a percentage (I recommend 75%) of the total revenues one would receive if fully occupied, in determining if one hits that magic 6% return!
3. Option Two: Pricing at the lower end of market: While providing the best chance to optimize occupancy rates, there is the risk of having lower quality tenants, etc. In addition, doing this, may offer the owner, less flexibility, etc. In rental properties I personally own, I often will price in the lower 50%, if I can attract and keep/ maintain, reliable, quality tenants, by doing so. This is also a gamble, but has worked effectively for me, since I have been able to have a far lower turnover rate, than the rest of the market.
4. Option Three: Pricing in the middle: This may be a wise compromise, if done carefully, and wisely. Always keep a keen eye on the market, your expenses, and carefully screen and qualify potential tenants.
All of these pricing strategies have pros and cons, but what’s most important, is for you to clearly identify, which strategy you will pursue, and maintain the discipline to be consistent! Effectively owning, managing and making money, on rental properties, requires discipline, commitment, and paying keen attention!
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Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com