A friend of mine sent me a link to some rental property that he owns on a golf resort. The pricing options are $6k per month for 4 months, $5k per month for 5 months, and $4k per month for 6 months.
My response was that it didn’t make sense, since everyone would just select the 6-month option (even if they only needed 4 months), especially if factoring in the time value of money, And the 5-month option actually costs more in total than the 6-months, so why would anyone select that one? He told me this is standard and seemed to suggest that I was a novice at residential real estate.
I’m not 100% sure, but I don’t think that there are any other fees to consider, and utilities are all included in the rent.
It’s standard for short term rents to be higher than long term rents. For an extreme example, compare an AirBnB at $150/night versus a similar place with a year lease at $2000/month. Short term rents are often furnished, which can also make them more expensive, but that might not apply when talking about the exact same place.
The consumer pays for convenience, and the landlord is making up the cost of more time spent dealing with each unit, as well as extra unrented time. Though prices are ultimately set by the market, not the landlord’s expenses.
However, the numbers your friend quotes don’t make much sense. The same price for 4 months or 6, and a premium for 5 months? Buy your friend a calculator.
Can you look at nearby properties and see what sort of rental structure they have? It might be that high-priced rentals cater to people who don’t care a lot about saving money. If they want a 4 month rental at that resort, maybe they are just looking at 4 month rentals and not doing cost comparisons or bargain hunting.
True. That would make perfect sense if quotes were being provided based on the renter’s time requirement. But these prices are all within a single listing.
When I signed a lease for an ordinary, non-golfing apartment, this past August, the management company wouldn’t come down on rent because that would de-value the building “on paper” and “the bank” wouldn’t allow that. However they gave me 2 months free for my first year lease. Since I had no idea what the world would be like in a year I just said What-the-heck. I had to get out of my old building, which was a firetrap.
Yes but what does the “on paper” thing mean? My guess: my new building is actually an old Safeway warehouse that had been renovated for residential occupancy. Up to code and all that. Around 50 units total. The cost of that renovation was paid for by bank financing, i.e., a commercial loan. Part of the terms of that loan may have included things like anticipated rental income, which is part of a building’s valuation.
The bank would rather see the building stand empty, as long as they get their finance payments on time. The owner, of course, could end up losing their shirt but bank doesn’t care as long as they get their payments. Owner could also declare bankruptcy and who knows what would happen to the existing tenants. Management company won’t even reveal identity of owner, although I can probably find out at least what the LLC is called, even if I can’t find the individual.
My city apparently has 4,000 vacant housing units, possibly owned by speculators or other non-local entities, and 4,000 homeless camping out in front of said units. Maybe overseas people like to buy condos in California as an investment but they don’t want the bother of dealing with an actual tenant, so they keep it vacant. All perfectly legal. Because property ownership is sacred. And I mostly support this, except I wish it didn’t have this particular outcome just now. It’s such a waste all around.
Financially it doesn’t make sense. The only thing I can think of is that there is a stronger desire to have full occupancy [or high occupancy] level as opposed to monthly payments. For example, they want to sell new prospective buyers or investors on the fact that 98% of possible months are rented.
In addition to that, the management company would have cost related to tenant turnover, eg.: cleaning up, damage repair etc., those are minimized by having longer-term tenants. Although I don’t know how big a factor that would be here.
@ArtBeforeScience
I’m not sure what your question has to do with the OP, but “on paper” is obviously the officially contracted lease rate.
This is noted differently for a couple of reasons:
If the rental rate is $1000 per month “on paper”, they’d rather give you two free months than drop your monthly rate by 20%. That way if you stay on for a second year you’re paying the full $1000 versus $800.
Additionally, because rental rates are regulated by most governments, once you’re in a lease that rate can only be changed by pre-determined amounts (based on the rate you pay “on paper”). If the government allows a 5% increase in rentals going forward, you’re locked into $1050 per month increase as opposed to $840 per month if they’d dropped your monthly rate.
When the landlord is prepared to give you free months to sign up, they’re hoping that you’ll become a long-term tenant.
There may be other considerations. I’m sure that this is in an HOA, and it may require that “club membership fees” be paid each month in addition to rent or that there is a clause in the contract providing for liquidated damages for unoccupied property (say it is important for tax or marketing purposes that the club advertise or put on their books that they have 100% occupancy.") or possibly other “because we can” fees that seem to spring up like dandelions. Maybe these are owed by the owner no matter what.
Maybe it is located in an area where many people come from their second homes in a warm climate (say Florida) but want to spend the summer in a northern area. So they decide they would like to book May, June, July, and August and head back for September. But April and September are still decent months and they would like to book up the resort from April through September to save on these fees or just because they don’t want to have to deal with vacant properties or a host of other reasons. Maybe the club wants to still seem to be hopping in the less desirable April and September months. Suppose also that 1 or 2 month rentals just don’t happen at a place like that.
So, they give you a choice, and the choice they want you to pick is to stay for 6 months. You can stay for 4 months, but you will pay the whole amount anyways. Why not just stay for 6? It’s “free”! You can pay for 5, but you’ll actually pay more, so why not just stay for 6?
Yeah, I think that explains it. Try offering $3K a month for 7 months.
About 40 years ago, I spent a month at a hotel in Chicago. It was $30 a night, but when I asked about a month, it was $300. So two weeks was significantly more expensive than a month. I think a month’s rental may also have avoided a hotel tax.