In all my property dealings, I come from the premise that running rental property is a business. And by reading my columns, I assume it’s because you too are committed to running your rental property business better.

Most people don’t run their real estate like a business. While companies such as McDonalds spend millions to pick out locations, check out the competition, and do market research, many owners haven’t even walked down the block in years to check out their competition. Most people have no plan. They’re just hoping things will work out. When the market gets better, they do better. When the market gets bad, they blame circumstances, rather than looking at their own business operation.

Are You A Real Estate Marketing Genius?

When the market is strong, many owners consider themselves to be geniuses. They think that just because their building is full, they must be doing something right. In fact, many like to brag “I have a waiting list” like that is proof that they know what they are doing.

But let’s look at it another way. If you owned a retail store and sold a $10 product for only $5, you’d probably sell out very fast. In fact, you might sell out so fast, you’d have to create a “waiting list” to satisfy all the customers who want to buy your product so cheap.

In retail, if someone sells a product for which he could command $10, for only $5, and sells out, he’s not called a “retail marketing genius”. No – he’s called a bad businessman!

Now, would it really make a difference in your opinion if the reason he charged only $5 was because he’d been doing it for years? Would it matter if he didn’t know that he could get $10 for the product (because he never checked out his competition)? Would your opinion of this businessman increase if I told you he only charged $5 because he displayed his merchandise poorly and customers couldn’t see that it was really worth $10? No, you’d consider him a bad businessman even more!

And that’s exactly what you are if you don’t take the time to know what’s going on in your market, don’t check out your competition, or don’t try to come up with creative ways to improve the appeal and marketing of your rental properties! 

You Don’t Set the Rent – Your Tenants Do

Rents, like all other prices, are set by the law of supply and demand. It has been said that you can no more repeal the law of supply and demand then you can repeal the law of gravity. It’s time for your rents to be at market.

Now, when you ask market rents, people may call you a rent gouger, or some other similarly less than complimentary phrase. But raising your rents to market doesn’t suddenly metamorphose you into a greedy, unscrupulous landlord. Rather, it means that you are a good business person and you understand the nature of the business you are in. Remember, you don’t set the rents, the market does. And who is the market? Tenants.

Tenants are the ones who tell you what level to set your rents. If you were the one who set the rent, you’d never have cash flow problems. You’d never have a building that loses money. All you’d have to do is set the rent at whatever level made you money and that would be it!

But you know that you don’t set the rents, the market does. If you ask too much, they’ll go somewhere else. The guy down the street might have nicer units or a newer complex, or some nice amenities. All these have a value. If your price is right with your value, tenants rent from you. When your price/value ratio is out of line with the others, you get vacancies. Worse, you get vacancies that don’t fill.

Most people focus on the rent lost to a vacant apartment. Better to focus on the rent lost by all the occupied apartments which are renting at below market rents. If you’re renting all your apartments at $45 below market and you have a 30 unit building, you’re losing a lot more than you are with any single vacancy.

How to Determine Market Rent

Determining market rent is a three step process. Step one is to perform a market survey. In a market survey, you visit the competition to see what they’re offering (or not offering) and compare it to what you’re offering. The basic idea is that if the other one bedrooms apartments in your area, adjusted for various items, are getting $800, you too should be able to get $800.

Step two is to view your property outside of the context of your competition. You need to ask yourself some questions such as: Is there are market that is not being marketed to? Is there something unique about my property or something I can create in my property that will get me a better rent than my market survey would show, etc.

From steps one and two you make your best guess as to what the market rent is for your unit. You make any physical changes to your property that are required or you make changes in your marketing that will attract the highest rent. Step three is to ask – and then make adjustments if necessary. We’ll explore these steps in more detail.

Step 1: Perform a Rent Survey

You want to visit all the properties that your applicants would view as your competition. You will then compare what they offer with what you offer. I find the best approach for information is usually direct. I ask the manager what they are getting for their various apartments and then I ask to see them. I can usually overcome any reluctance to show me the apartment by offering to send the manager the results of my comprehensive rent survey when I am done.

You want to note both the lowest rents asked for a particular unit type (i.e. 1 bdrm) and the highest. Using averages will only distort the picture. You must also note “buy” factors. This includes unit size, curb appeal, amenities, and other factors which will influence a prospect to rent.

Obviously, assigning a dollar amount to “buy” factors is totally subjective. What’s a swimming pool worth? $20? $30? $-10? Inevitably, you will be making some guesses. How right you are will be borne out in step 3.

If nothing else, a rent survey will create in you an awareness of the features of a particular property that constitute its competitive advantage. In other words, knowing your property’s unique advantages and disadvantages will give you an edge over the competition. You can downplay their assets to prospects and play up the features of your property.

When you are comparing buildings, be extra wary of buildings that are full. Remember, your vacancy competes with other vacancies – not with full buildings. The other buildings may be full because their rents are too low! So don’t go by their rent levels! In the real world, full competitors are not competitors because no applicant gets to see them.

Step 2: Ask yourself questions

You’ve seen the “outside world” of other rentals. Now it’s time to analyze your own property. Ask yourself some questions. Where are my existing tenants coming from? What events are happening in the surrounding community that might impact me? What are three things I could do to enhance the appeal of my property?

Differentiate your vacancy rate by type of unit. You might find your one bedrooms are just fine but your two bedrooms are too low. You might find that the first floor units rent right away, but the second floor ones take time. Maybe the ones in the front rent quickly but the ones in the back sit idle. Or perhaps courtyard apartments rent faster than street ones.


If you really want to get detailed with your building, you can calculate your vacancy rate by each and every unit in the building. This sounds like a lot of work, but in reality will only take a few hours the first time it is done – and it could be worth a lot of money to you. This exercise allows you to detect patterns you might not otherwise see.



Step 3: Determine your asking price.


If you include the price of your rental when you post your ad and the phone rings off the hook the first day with a large response of callers, there’s a good chance your rental rate is too low! If you show the apartment to four prospects and four prospects offer you money on the spot to rent, again you’re probably too low.

When you have a vacancy, it’s best to ask a little more than you think you can get. In essence, you are saying “Will anyone give me $800 for this apartment? If someone says yes, than it is worth at least the $800. Next time, you ask $825 or $850 and see if anyone says yes.

If your unit doesn’t rent, than you drop the price a little. Repeat the process until it is taken. Now this one time could be a fluke. You might actually have gotten someone to pay above market (he could be desperate, etc). Or you might have rented below market (It was December and no one was looking). So market value is not truly determined until you rent a few units at the same, or similar, price.


You must be the one to take the initiative to determine your property’s true market rent. When was the last time one of your tenants told you the rent was too low and volunteered to pay more? Don’t wait for it to happen. It won’t!

Raising your rents to market means that you are a good business person who understands the nature of the business you are in. Just because tenants don’t volunteer to pay more rent doesn’t mean they won’t or can’t or that the apartment they live in isn’t worth more. If the value is there, they will pay it. And if not them, someone else will gladly do it.

You must understand that you can lose money in your business, just as you can in any other business. Running your rental properties is a business. It is not a form of relaxation or a hobby. Treat it as such, and you will do very well.