At most, only one in three institutionally owned homes in America are priced correctly when they’re put on the market.
When it comes to renting out a single-family rental (SFR) home, one of the most critical factors affecting your bottom line is the initial pricing. An improperly priced home can linger on the market, leading to extended vacancies and substantial financial losses. Every pricing adjustment not only indicates a pricing error but also contributes to longer vacancies, creates customer confusion, and could cause revenue leakage. Understanding and avoiding these pitfalls can save your company time and money, ensuring your property is rented out swiftly and profitably.
The Risk of Incorrect Pricing
How big of a risk is it? Below is a graph showing the relationship between the number of pricing changes made by institutional investors on the market in the past two years and the corresponding increase in Days on Market (DOM) that a home will face.
The Chicken-and-Egg Problem
It’s not just a chicken-or-egg problem but a chicken-and-egg problem: DOM increases and price changes are simple symptoms of a broader issue – a home that is not priced correctly within the market. By getting this wrong, an incredible amount of money is being left on the table.
Improperly Priced Homes Can Wipe Out Rent Growth Gains
Zooming in on the first 10 pricing changes, the area of most interest, we can see an alarming trend: from zero to one pricing change means you’re going to spend roughly twice as long on the market. From one pricing change to a second, it’s another 14 days on the market. With an average rental rate of $2000, going from 15 DOM to 47 will forego 9% of your annual revenue – an amount you’re unlikely to recapture even with perfect operations.
Properly Priced Homes Will Pay For Themselves
The remarkable aspect of all this is that getting better pricing is a sound financial decision involving virtually no risk for a company.
At $1.50 per home per month, Forest Premium is one of the best investments you can make into your SFR REIT or Property Management company. The math that shows it pays for itself is straightforward:
If you were to use Forest Premium on a 1,000 home portfolio with an average rent of $2000/month, all you would need to do to cover your Forest costs would be:
- 14 homes moved from 1 pricing change to 0 (1.4%) OR
- 20 homes moved from 2 pricing changes to 1 (2%) OR
- only 7 homes moved from 4 pricing changes to 1 (0.7%)
On a 1,000 home portfolio, Forest pays for itself by getting the price correct on around ONE PERCENT of your portfolio. With 67% of institutional homes requiring more than 1 pricing change, there is endless opportunity.
This also ignores all the extra revenue benefits that Forest Premium can provide like Lease Expiration Management, Increased Rent Growth from industry insights and trend analysis, and consistent pricing across your portfolio. In fact, current Forest customers have found that Forest Premium is one of the best investments they’ve ever made – many seeing a 10x return on their investment.
Invest in Forest Premium today and unlock the full revenue potential of your SFR portfolio.