I can’t find a tenant. Is it preferable to go down with the price immediately or wait?
This is a frequent situation in Prague today. The tenant of the apartment has left and it is necessary to find a new one. There is not much interest, however, in paying the original price and the apartment is exceedingly more difficult to rent. Does it make sense to keep the original rent level and wait for the right tenant or immediately lower the rent to the current market level and find a tenant right away? We´ll show the financial calculation for both cases and see which variant will have a better financial result. Before the tenant left, the apartment was rented for 15,000 CZK per month + utilities of 2,500 CZK.
The landlord considers these two options:
a) Advertise the apartment immediately for the current market rent. They looked at the offers on internet portals and consulted the rent level with a real estate broker and came to the conclusion that the current rent is 12,500 CZK + utilities 2,500 CZK.
What was the result? The interest was sufficient enough to find a solid tenant within a month.
b) Try to offer the original rent level of 15,000 CZK per month for + utilities 2,500 CZK for one month and then reduce the price by 1,000 CZK. If this discount doesn´t help, then reduce the price by another 1,000 CZK the following month.
What was the result? Interest in the apartment for 15,000 CZK (1st month) was minimal, for 14,000 CZK (2nd month) also minimal, potential tenants started to appear on the level of 13,000 CZK (3rd month) and finally a solid tenant was found in a month and they agreed on the rent of 13,000 CZK + utilities of 2,500 CZK. The landlord rented the apartment for a slightly higher price than in the first case but at the cost of waiting for the tenant for a total of 3 months.
What can we see from the comparison of income from the two options?
A variant where the apartment was immediately offered with market level rent
Income in the first year – 11 months occupied for 12,500 CZK + utilities, i.e. a total of 137,500 CZK earned. However, it is necessary to deduct the cost of utilities of 2,500 CZK for one month when the apartment was unoccupied by the tenant, i.e. the landlord was left with 135,000 CZK.
A variant where the rent was gradually reduced to the current market level
Income in the first year – 9 months occupied for 13,000 CZK + utilities, i.e. a total of 117,000 CZK. However, it is necessary to deduct the cost of utilities of CZK 2,500 for three months when the apartment was unoccupied by the tenant, i.e. the landlord was left with 109,500 CZK.
Conclusion
Obviously, when renting it pays off financially to set the market rent immediately at the beginning of the offer. The time when the real estate is empty will be significantly reflected in the final income that the rented real estate should bring us. In this example, the landlord will make up for the loss of time as late as in about 4 years.
If you are interested in the current situation on the rental market in Prague, you will learn more in this article.