Yesterday I went to sign a lease on one of our properties. Normally this particular property rents for $750 per month and that’s exactly what we marketed it for. However, after a short discuss with the tenant he happily agreed to pay $815 per month for the property.
So how did we do that?
The answer is simple – we gave him the McDonald’s treatment. When you go into McDonalds what’s the first thing they ask you after you order a burger?
Would you like fries with that?
I love fries and I’m sure you do too – they go great with a burger. Well, let’s pretend we’re McDonalds but we’re not selling burgers, we’re renting houses. What do you think McDonalds would offer their prospective tenants once they agreed to rent? If you really think about it there are hundreds of things you could offer. Here’s our menu of “fries” that we offer to our tenants. You can see that each upgrade increases their monthly rent by a nominal amount. For this particular lease signing the tenant took one look at the list and said:
I want the flat screen…make it happen!
There was no coaxing, no selling, no haggling to increase his rent. This guy took one look at the list and knew he needed a big screen. Heck he was even eyeing the lawn mower but that was “too expensive”. So, just like that we increased our monthly rent by $65. Sure, we’re going to have to go out and buy a TV, but let’s take a look at the numbers.
The TV we’re going to buy is a 42″ plasma TV from Costco at a cost of $399.99 ($424 with tax). Over the course of the first year we will collect an additional $780 from this tenant which means we’ve increased our cash flow by $356 for the year. Now here’s the kicker – if this tenant stays beyond the first year we’ll increase our cash flow in the 2nd year by $780 (I won’t even talk about the 3rd year). The bottom line is that we set the pricing on each upgrade so that it will pay for itself during the first 6 months of the rental. Everything after that is gravy.
This certainly doesn’t work with every tenant, but it’s an easy program to offer. If you don’t offer things like this you could be leaving money on the table…so take a cue from McDonalds and start offering fries with your rentals.