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Comment by sokoloff | Hacker News Reader

If I have 100 units and set the price such that no unit is ever vacant, that price is surely lower than if I set the price such that 90 or 95 of them are occupied at any given time.

If the rent to leave 10% vacant is 11% higher, I basically break-even on cash-flow and have a higher building valuation (on a multiple of rents when fully-rented basis).

If it's 12% higher, I make more cashflow (plus giving myself an easier job with more freedom in operations to do medium maintenance between tenants and have units free for temporary dislocations, etc;).

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Right, and it works best for large landlords that have hundreds or thousands of units.

The small landlord/owner with a couple of houses or condo units is going to want them 100% rented because leaving even one of them vacant is going to be significant impact on revenue.

It actually works out for the small landlord also. Let's assume there's a "fair rent" for the house - $1000 a month to make it easy.

If you rent that out for $900 a month, you will basically never have it empty, because those in it won't want to move (they lose the $100 bonus) and if they do, someone will grab it right away.

If you rent it for $1000 a month, it'll fill up relatively easy (compared to the market it is in) so you'll often have relatively low vacancy (but even one month empty is paid for by ten months rented.

If you rent it for $1100 a month, it'll be vacant much longer, perhaps forever depending on supply.

"it'll fill up relatively easy (compared to the market it is in) so you'll often have relatively low vacancy (but even one month empty is paid for by ten months rented."

You are assuming that the marginal cost of turnover is zero, which it definitely isn't. Putting a unit on the market, showing it to prospective tenants, processing applications, background checks, income verification, etc is labor intensive and expensive. This is during the period where you have 0 income from the unit.

The real trick is to find good tenants who are, in turn, convinced that you're a good landlord. Then you're in better shape for both turnover and rent amount.

A large number of small landlords buy their units for appreciation rather than rental income.

Just as much, small landlords are terrified of the damage a bad tenant can do and might not have the resources and experience needed to quickly get rid of such a tenant and finding a tenant can be expensive and time-consuming giving them further incentive to leave the place vacant. And also having less knowledge and experience, small landlord aim to follow the market and they'd aim to have an apartment as "market rate". Certainly, lowering an existing unit's price would only bring in "less desirable people" since "desirability" is very much a function of income.

This doesn't make sense in a few ways:

1. You won't increase rents for existing leases, these need to be up for renewal so you can make changes to them.

2. You are assuming that you control the whole market. Even if 70% of landlords use RealPage and their pricing recommendations, the remaining 30% should be able to absorb some of the people moving out as a result of this if the new rent is substantially over market.

3. This creates somewhat of a prisoner's dilemma problem. Any non-compliant landlords inside the 70% bucket could only raise their rent by 5% instead of 10%, get full occupancy rates and come out ahead of their competitors.

RE #3: yes, and RealPage was caught trying to get employees who realized this fired, thus the illegal monopolization.

> Even if 70% of landlords use RealPage and their pricing recommendations, the remaining 30% should be able to absorb some of the people moving out as a result of this if the new rent is substantially over market.

It means that 30% people will get market-determined terms and other 70% will have no choice but to accept RealPage pricing. Because they need to live somewhere.

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