Sim said:
In fact, here's a formula to help you do exactly that...
D = amount (dollars per week) we think we would have to discount rent by to get a tenant (compare your asking rent to those of similar properties nearby ... D should be the difference in price between your asking and the lowest price elsewhere)
W = number of weeks vacant (either how long it has already been vacant, or the total length of time you think you will need to keep advertising for before you get a tenant at your current asking rent)
R = your current asking rent (dollars per week)
The formula is:
(52*D/R) - W < 0
... or in other words ... when the formula on the left evaluates to a number less than zero, then you would have been (or will be) better off dropping your rent by $D per week.
For example, with a property renting for $300 per week, a discount of $20 per week or face 3 weeks of vacancy, formula evaluates to (52*20/300)-3 = 0.46 which is greater than zero, so better off waiting for three weeks to get our $300 per week ! Simply put... 3 weeks @ $300 loss through vacancy = $900 lost ... 52 weeks @ $20 per week discount = $1040 ... costs more to drop the rent.
But look at what happens if you have to wait for a fourth week! Formula evaluates to: (52*20/300)-4 = -0.53 ... meaning that we would have been better off dropping our rent by the $20 than waiting for 4 weeks for our higher rent.
Of course, there are many more variables than this - but I think it serves to illustrate how the concept works ... there is a point at which enduring extended vacancy costs far more than accepting a decrease in rent.
Another example: let's take a nice round figure of $260 a week.
$5 a week discount versus 1 week vacancy - no difference
$10 a week discount = equivalent to 2 weeks vacancy
$15 a week = 3 weeks vacancy
$20 a week = 4 weeks ... etc etc etc
Sim,
You've impressed the sh ite out of me!
I have a sort of formula too and it works something like this:
When speaking to the PM, I say these words........
.."What sort of dollars is gonna get me a tenant within a week?"
Now the PM knows how to interpret my formula and she knows that when I say the word
"week" ,
it really means a period of between 1 day and 3 weeks.
She has deduced this from previous phone conversations we have had, when she's asked me to come to the office and I have replied that
"I'll be there in about 15-20 minutes"
and I actually get there 3 hours later or sometimes maybe even the next day.
Anyway...moving on....She usually replies with one of the following
a) Look the rent is fine, there's just no takers at the moment.
b) The rent is ok but the place could really do with:
(one of the following)
*new carpet in the lounge
*a new stove
*the kitchen and bathroom repainted
*the garden being spruced up
*etc etc etc.
c) There's a lot up for rent at the moment, maybe we could drop by $x a week
d) I've had a couple of people look at it and I'm waiting for an application to come in
e) I took an application yesterday and I'm just checking them out
f) The place is an absolute dump, I wouldn't let my worst enemy stay there, how dare you call yourself a responsible landlord, offering a piece of sh ite like that and expecting me to find you tenants, you would have to pay someone to even consider living there.
If the answer is either a, d or e of the above, I do nothing and wait.
If the answer is b, I usually take her advice and do the task
If the answer is c, I ask for some comparison properties and I do a drive by just to make sure before dropping the rent (I have on occasion got out of the car and peered through windows - only on vacant places but)
If the answer is f, and it aint happened yet, but should it happen
(future planning to be on the safe side),
I think I'd do one or all of the following:
a) Take a contract out on the PM
b) Arrange for the PM to wake up next to a Horse's Head
c) Have the PM kidnapped, tortured & beaten until she apologises
d) Realise that I have got it all wrong, give everything away and go and live out my days in a Buddihst Monestary.
BTW..Good News Marina, hope the other is leased real soon for you
regards
