Optimal Property Management Strategies

Abstract

This paper examines the optimal operation strategies for income properties. Specifically, the rental rate and the operating expense should be set at levels to maximize the return on investment. The results suggest that for a given demand curve of a specific rental property, there exist optimal levels of the income ratio, the operating expense ratio, and the vacancy rate. With a Cobb-Douglas demand curve, we derived closed form solutions of these optimal ratios for a given income property. The relevant local comparative statics of these ratios also are derived. These comparative statics also provide insight into the optimal building size and optimal rehabilitation decisions. An empirical case study was conducted to demonstrate how the model can be applied in real life situations.Rental Property, Vacancy Rate; Operating Strategy, Profit Optimization