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Implicit Rental Rate

What is 'Implicit Rental Rate'

The opportunity costs that a firm incurs as a result of using their own assets for ongoing operations instead of other alternative uses. The implicit rental rate can be either greater than or less than the firm's cost of capital.

Explaining 'Implicit Rental Rate'

In the event that the implicit rental rate is lower than the firm's cost of capital, then the firm is not likely to be in business for very long. This is because the firm's cost to operate its assets, as measured by its cost of capital, is greater than the firm's best alternative use for those assets.


Further Reading


The Housing Rental Rate Elasticity of Aggregate Consumption: A Panel Study for OECD Countries
www.tandfonline.com [PDF]
… However, rising asset prices moderated the reduction in rental rates 27 … Table 5–Implicit rental rates for farm equipment and structures, 1955-79 -| Long-lived Unitary Crop … farm livestock storage agricultural l (9)(12)” equipment facilities structures Structures Rate 1955 0.1408 …

Are home prices the next bubble?Are home prices the next bubble?
papers.ssrn.com [PDF]
… However, rising asset prices moderated the reduction in rental rates 27 … Table 5–Implicit rental rates for farm equipment and structures, 1955-79 -| Long-lived Unitary Crop … farm livestock storage agricultural l (9)(12)” equipment facilities structures Structures Rate 1955 0.1408 …

Rental housing market segmentation in Germany according to ownershipRental housing market segmentation in Germany according to ownership
www.tandfonline.com [PDF]
… However, rising asset prices moderated the reduction in rental rates 27 … Table 5–Implicit rental rates for farm equipment and structures, 1955-79 -| Long-lived Unitary Crop … farm livestock storage agricultural l (9)(12)” equipment facilities structures Structures Rate 1955 0.1408 …

Net investment in farm tractors: an econometric analysisNet investment in farm tractors: an econometric analysis
academic.oup.com [PDF]
… However, rising asset prices moderated the reduction in rental rates 27 … Table 5–Implicit rental rates for farm equipment and structures, 1955-79 -| Long-lived Unitary Crop … farm livestock storage agricultural l (9)(12)” equipment facilities structures Structures Rate 1955 0.1408 …

House prices and inflationHouse prices and inflation
onlinelibrary.wiley.com [PDF]
… However, rising asset prices moderated the reduction in rental rates 27 … Table 5–Implicit rental rates for farm equipment and structures, 1955-79 -| Long-lived Unitary Crop … farm livestock storage agricultural l (9)(12)” equipment facilities structures Structures Rate 1955 0.1408 …

Returns to Single-Family Owner-Occupied HousingReturns to Single-Family Owner-Occupied Housing
www.aresjournals.org [PDF]
… However, rising asset prices moderated the reduction in rental rates 27 … Table 5–Implicit rental rates for farm equipment and structures, 1955-79 -| Long-lived Unitary Crop … farm livestock storage agricultural l (9)(12)” equipment facilities structures Structures Rate 1955 0.1408 …



Q&A About Implicit Rental Rate


What is an implicit cost?

An implicit cost is a cost that results from using an asset instead of renting it out or selling it.

What does the term "implicit" mean in this context?

Implicit means hidden or not obvious.

Is the implicit rental rate always greater than or less than the firm's cost of capital?

In some cases, it can be either greater or less than the firm's cost of capital.

Why are implicit costs considered opportunity costs?

Because they represent what the firm must give up to use the resource for its own purposes, rather than renting it out.

When does a firm not have to worry about its implicit rental rate being lower than its cost of capital?

If it has an attractive enough business model to make up for this difference.

What is the implicit rental rate?

The implicit rental rate is the opportunity costs that a firm incurs as a result of using their own assets for ongoing operations instead of other alternative uses.