What do renters want? I just did a Junior Achievement class and one of the things we talked about was price. Given two identical items sold in identical ways by two different companies the only difference in the volume of sales is the price. The students learn quickly that they need to have the lowest price, but not so low that they don’t make any money on the item’s sales. In subsequent classes we talk about how additional features added mean that the prices can be different because the product is different. Now, the desirability of the product becomes more important.
I then asked the students if there are other things that companies can sell that aren’t tangible. Eventually services come up. And then I turned the discussion to rental properties. As a landlord, you are selling a product. You are selling a home to live in for a certain period of time. Your product is replaced automatically each time period (usually a month). You want that product to continue to be nice enough so that the purchaser (tenant) finds value and continues to pay you for your service.
What about when a person is looking for an apartment?
There are a bunch of different qualities that tenants look for when deciding to purchase. Here are a few;
- Square Footage
Go ahead: take a minute to rank these in your head about what would be most important to you if you were looking to rent. What do you think is the ranking for the typical renter right now?
- Square Footage
How many did you get right? This is great knowledge, but it doesn’t tell you everything. It does tell you that tenants are not likely to care about the name of the manager that is put on the sign out front. That pool or fitness center is nice and is certainly wanted, but it takes back seat to the others. Even size is less important that location and price. Price is something that you do have control over, though. Buy the place at the right amount and you can set your price almost anywhere. Since this is most important to tenants, you will be ahead of the competition.
I’ll spare you the quotation about repeating location three times that is so often made in real estate. We know price is more important. The thing about location is, you can’t change it. Once you have made the purchase, you are locked into that part of town. Is it near the best schools, retail shopping, or is it next to a train track? Is it in an area of high crime or is it near a subway stop? These are very important to people and they will usually make a decision to compromise the other things in order to move to a good location. Other things except price, that is. The take home message here is that when purchasing your investment, you really need to be thinking about location. You can change the price but not the location, so for you this takes precedence. Obviously all of these items can’t be compared apples to apples. There is no way to quantify location vs $1 of rent. There will be a tipping point for anyone so keep in mind these are generalities. So, when you are searching for your next great deal, find the location that you want first, which is really the location your tenants want. Then move on to the price you can pay.