26 Nov Serve the Underserved Markets and Make More Money
Ever talk to a dog owner who needs to find a rental? Odds are that you’ll hear that it’s hard to find a landlord who accepts pets.
Immigrants who don’t speak English well can find it hard to be approved for a rental. Some may never even submit an application because they don’t know how to fill it out.
People with a Section 8 housing voucher may encounter many landlords who won’t accept vouchers.
A traveling nurse on a 6-month contract prefers a 6-month rental over a hotel room, yet every landlord she finds says they want a 1-year lease.
College students want a simple move-in experience in which they can immediately plug and play. In other words, a landlord who includes high-speed Internet, a TV service, and other amenities can charge a premium, which the renters will gladly pay for the convenience they receive.
As a landlord, you have opportunities to cater to certain cohorts who would be willing to pay a premium. For example, a landlord who considers pets should expect to receive more applications, and they can charge either a pet deposit or an additional pet rent. Pet owners are willing to pay more up front or per month for a place that allows pets, and perhaps even a place that has a fenced yard. When marketing a residence for rent, my wife and I say we will consider pets and that we charge a $35 monthly pet rent per pet. We receive numerous inquiries and applications from pet owners. I recommend that landlords charge a monthly pet rent versus a one-time pet deposit because you will likely bring in more money over the long run since pet owners may stay for quite some time.
If you consider a lease shorter than 12 months, then you’ll be one of the exceptions among landlords. One year we had a hard time finding a tenant for a 2-bedroom apartment, and a graduate student told us she was evaluating our apartment and another one. She said she preferred a 9-month lease, and so we agreed to do that for her. She immediately rented the place and thus the unit was no longer vacant.
If someone comes to us who doesn’t speak English well, we will attempt to find a translator or at the very least use Google Translate to communicate. We have rented homes to immigrants with limited English skills, and they have been appreciative. In some cases, we added satellite TV for them for an additional charge per month since they had trouble getting the subscription in their own name.
We have fully furnished a home and leased it to a family who had no furniture at all. We even added unlimited Internet service. Renters are willing to pay more for such amenities.
There are times where I’ve rented to tenants using housing vouchers or some sort of public assistance, and there are times that I’ve chosen to go with a renter not using assistance. I know some investors who almost exclusively rent to people using government subsidies. These landlords love the guaranteed payments and typically have little tenant turnover. Even though housing vouchers in some areas offer a below-market rent, you have to factor in things like vacancy and turnover costs. If you were to have a guaranteed $1,500 a month renter who stays for five years, that would be $90,000 in gross rent (not counting increases for inflation). If you elected not to accept a voucher and received $1,700 per month but had three different tenants in five years with a 5% vacancy rate and a $3,000 turnover cost for new paint, new carpet, and cleaning, that would come out to $90,900. In this example, you would collect 1% more money by not going with a tenant using a voucher, yet you would have spent time turning over units and placing new tenants. What’s your time worth?
The first residential property I bought was a fixer-upper duplex within walking distance to a university. A college student who was a landlord next door told me that I ought to include Internet service and cable TV. So I offered Internet, cable TV, and an alarm system with the rent. I also installed dusk-to-dawn and motion sensor outdoor lighting on all four sides of the property to make tenants feel safe. I rented that duplex out like clockwork for 17 years before selling it.
The riches are in the niches. Think of what underserved markets there are in your area. Ask how you can cater to their needs. Price is only an issue when value is not demonstrated. When you provide value to an underserved market, they will be willing to pay more and stay longer. It’ll be a win-win situation.
Tai DeSa is a graduate of The Wharton School of the University of Pennsylvania. He became a full-time real estate investor in 2004 after serving in the U.S. Navy. Tai has made colossal mistakes in investing (and learned some things along the way). He has helped hundreds of homeowners avoid foreclosure through successful short sales. Check out Tai’s books on Amazon.com. Tai may be available for coaching and speaking engagements on a variety of real estate topics. Send an email to tai@investandtransform.com.
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