Expense and Rent Strategies in Real Estate Management

Posted: 27 Dec 1998

See all articles by Peter T. Chinloy

Peter T. Chinloy

American University - Department of Finance and Real Estate

Eric Maribojoc

Pacific Western


A model of the real estate market is developed where the rent-vacancy trade-off also embeds selections on expenses. High expenses and rents or low expenses and rents are explicit strategies, positioning properties along an efficient isoprofit frontier. Instead of a rent-vacancy trade-off, the operator can select either gross or net rent, or some combination as an offset for vacancy. This macrostructure is more in keeping with observed real estate markets, where some managers focus on net operating income, and others on effective gross income. Empirical results for apartments in Portland, Oregon supports the hypothesis that expenses and rents are positively correlated. An aggressive expense-increasing strategy pays off in higher rents, though in not all cases is net operating income positive. There are two implications. First, incentives in management create strategies to maximize gross as opposed to net income. Second, rent-vacancy trade-offs that use gross income may misstate the adjustment toward equilibrium.

JEL Classification: R32, R33

Suggested Citation

Chinloy, Peter and Maribojoc, Eric, Expense and Rent Strategies in Real Estate Management. Available at SSRN: https://ssrn.com/abstract=131899

Peter Chinloy (Contact Author)

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-1951 (Phone)
202-885-1992 (Fax)

Eric Maribojoc

Pacific Western

6505 Ursline Court
McLean, VA 22101
United States

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