How Much Should a Landlord Pay a Tenant to Move Out of an Apartment?
J Thoendell stashed this in Home
So, how can you calculate the maximum amount a landlord should pay his or her tenant to get out of the contract they signed? One way is to look at the difference between the current rent the tenant pays and the market rate, and then build a discounted cash flow model of how much more the landlord would make if he or she could reset the rents. That would be the most technically correct way, but it requires making many assumptions that are easy to mess up in a blog post. Luckily, there is an easier way. We need to answer the question: How much more do vacant apartments sell for versus ones with a rent-controlled tenant?
Polaris Pacific’s data set contains every single condominium transaction that happened over the last year. For each transaction, it notes whether the home is tenant-occupied or vacant at the time of the sale. The difference in price for real estate that is vacant versus tenant-occupied should tell you how much a landlord is willing to pay to get the place free of tenants. Just how big is that premium?
Let’s look at condominiums that were built before 1979 and therefore have rent control. In 2014 so far, there were 732 of these transactions. The median price of vacant units (it was previously landlord-occupied or the tenant moved out) is $1,025,000. Tenant-occupied real estate, however, is selling for a median price of $807,500.