Sometimes people question why it’s so important to get that last dollar of rent.
On a $2800 apartment, does an extra $100/month matter? After all, $100 is only 3.6% of $2800… no a big deal, right?
Wrong. Here’s how we think about rent in our business:
- All buildings are worth some multiple of their total annual rent
- In our areas, that multiple is currently 11-13x GRM
- So, $100 of extra rent per month x 12 months x (say) 12x GRM = $14,400 in building value
So, if you ask me to take $100 / month less in rent, you’re asking me to light $14,400 on fire. Which I’m probably not going to do.
A final note: Implicit in the above calculation is the idea that you are going to sell the building. If you’re not, then getting that last dollar is a bit less important. After all, charging a bit less rent reduces turn-over (because your units are a bit under what the tenant can find somewhere else). So, particularly in a non-rent control building, it’s not unreasonable to take a bit less, once you factor in the costs of turning units over (maintenance, lost rent while its vacant, leasing commission to refill it).