Rental Pricing by Bernie Madoff

“When I used to rent my property out, we had tenants in it paying $1,495/month.  You have it listed for $1,195/month.  What’s wrong with you?”

First of all, if things were so rosy in $1,495/month self-management land, I don’t think you would be talking to a property manager.  But I already digress… 

To begin, there are universal truths in this world, a balance if you will, that are governed by the laws of nature.  Some examples are:

• What comes up, must come down
• 2 + 2 = 4 (unless you have a good accountant)
• Jack Bauer (TV Show, “24”) will never die; and, by default, his daughter, Kim, won’t either because she is the only reason he has to live
• The higher the risk, the higher the return (and vice-versa)

Which brings up the whole Bernie Madoff thing…  Bernie, pre-2009, was doing pretty well and his investors loved him.  What wasn’t to love?  Investment advisors who provide 20%+ returns every year for their clients typically have a lot of friends (especially considering the market averages about 8% over the long term).  Unfortunately, everyone knows the end of the story (2009) when it turns out his investment fund was a fraud.  And investment advisors that lose all of their client’s money wind up with no friends, and some, like Bernie, wind up in a jail cell.   

So, 20% versus 8%.  Risk versus reward.  Would you rather have a tenant who pays $1,195/month with 700 credit scores or $1,495/month with 400 scores?  Good tenants know their value and typically have a good hand on what market rental rates for homes are.  Bad tenants know that they are lucky to get accepted into a property and are willing to pay more than the market rent (a risk premium).  It’s much like a good tenant can be compared to a AAA bond (stable investment with an average return), while a bad tenant is more of the junk bond variety (high risk, high return).

So the question is: Do you want to sleep at night or invest like Bernie?  Which movie do you prefer:  “The Fast and the Furious” or “Bridges over Madison County”?

More on how the “$1,495 Tenants” happen with help from his good friend, Allen Stanford, next time.

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company” (www.BDFRealty.com and www.RentToSell.com).  You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://twitter.com/bdfrealty.  He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.renttosell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this difficult real estate market.