How to right-price the rent? It’s an art form part informed by data, part informed by prudence and knowledge of what will get a unit cash flowing.

Except for the most obstinate of housing providers and their agents, it should come as no surprise that rents in the Bay Area are anemic.

This is something we know firsthand when interacting with apartment shoppers, but numbers from SockSite confirm it.

After crunching the numbers, it’s been reported that average rent in San Francisco continues to drop and is over 25 percent below its peak.

With a glut of new housing, Oakland’s rents were already at a two-year low at the end of 2023, but continue to tick down an estimated 4 percent. To put this in perspective, there are double-digit declines from what rents were at the same time last year and a whopping 22 percent below its 2016-era peak. The cerebral types can get the full scoop here.

Because of vacancies, there is pressure to reduce rents, but with the rising costs of operating a rental business, there is also pressure to get the highest rent possible when there is a vacancy. Therein lies the tension.

Housing providers need to reach a sweet spot. Some owners will decide that they will wait longer to command a higher rent because the unit is subjected to just cause eviction rules and rent regulations. Rather than renting a unit for $2,700, they have a vacant unit at $3,000 a month languishing on the market for eight months because it is overpriced; the market is not willing to pay the asking price of $3,000 but $2,650 is a more attractive price.

Doing the arithmetic, landlords who set their expectations too high can lose several thousand dollars by keeping a unit vacant with no cash flow. It can take years for owners to recoup this lost income.

Setting the rent at the peak may only attract the wrong types of rental applicants. 

What we have found is that some rental applicants are willing to pay an inflated amount of rent simply because they cannot obtain housing elsewhere because of blemishes in their past. It could be a prior bankruptcy, an eviction history, a lack of landlord references, a restraining order - it could be any number of things that make him or her an undesirable candidate for a rental.

Owners can be thrilled to find an applicant willing to pay the full market rate for a unit, only to be disappointed later on to find that the tenant is unable to pay the rent.

Also keep in mind that if a tenant is unable to pay rent on their own, it is entirely possible that they invite roommates to live in the unit to chip in; when an owner believes they are renting to one or two people, they may find that there are now six people residing under the same roof. In certain jurisdictions like San Francisco, there is little recourse when unfamiliar faces are ushered in.

Parting thoughts

Let’s think smartly and strategically about right-sizing the rent. As the founding attorney of Bornstein Law and broker of record for Bay Property Group, Daniel Bornstein will gladly have this dialogue with you.

Setting rent amounts is just one component of good property management. In a recent webinar, Daniel discusses the many parts of laying the groundwork for a profitable, hassle-free experience for owners.