Understanding The Renting Out A Room Game

Today while I was checking the mail I ran into a neighbor of mine.  He lives in the same apartment complex as I do and has been trying to rent out his 2nd bedroom for the last 3 months.  Every time I see him, I always make sure to ask him if he’s rented out his room and give him some advice on how he could rent it out quicker.

When I asked him today if he’d rented out his room, he said that he hadn’t again.  I decided to dig a little deeper into his situation and try to help me out.  After all, I like to help people and he obviously needed some help to get his room rented.

Here are the pertinent facts:

- his rent is $1100 for a 2 bedroom, 1 bath apartment
- he is trying to rent out the smaller room for $500
- the room has gone unrented for 3 months

Hopefully you see a major problem with one of these facts.  The room has gone unrented for 3 months!  He has cost himself a lot of money by not renting out the room.

There are two financially important things to think about when renting out a room in your home:

1. To get the highest rent possible for the room
2. To keep the room rented as much as possible.

Most people get so stuck up on trying to get the highest rent for the room, that they forget half of the game.  It is just as important to keep the room rented.  You get $0 rent when nobody is in there.  My neighbor is committing this common mistake.

Why should you be concerned about keeping the room rented as much as possible?  Let’s look at some numbers:

Scenario #1 – getting as high a price as possible

$500 Rent
6/12 Months a year the room is rented
Total Rent: $3000

Scenario #2 – keeping the room rented as much as possible

$300 Rent
12/12 Months a year the room is rented
Total Rent: $3600

Scenario #3 – maximizing your income through both price and occupancy

$400 Rent
10/12  Months a year the room is rented
Total Rent: $4000

As you can see, changing the rent price has an effect on how rented the room stays.  This is simple supply and demand.  If your room costs a lot of money, it will be hard to get people in there.  Plus they will leave when they find something cheaper.  If your room is a bargain, you will have people knocking down the door trying to rent your room and it will stay rented.

According to my scenarios my neighbor would make $600 more by dropping his rent $200 a month.  I guarantee the room will rent for $300.  You can’t find a bedroom this cheap in San Diego. 

Somewhere in the middle is where your maximum income lies.  In my neighbor’s case, I suggested that he drop the price if he wanted to rent the room.  He is losing out on hundreds of dollars as the room sits unoccupied.  Personally, I would rent the room for $400 and pick the cream of the crop from my potential rentees.

Written by admin on August 9th, 2006 with no comments.
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