As a landlord or property manager, setting the rental amount can be tricky. You want to ensure that the price is low enough to attract applicants, while high enough to cover costs. Pricing units lower may result in problematic tenants, but higher prices can lead to longer vacancies. Determining the right price for your unit, or units, can be a challenge.
Fortunately, there are a number of straightforward steps landlords can take to figure out how to properly price rentals. By using these simple steps, you’ll have a better idea of the going rate in your local market and what you want to charge.
1. Research Similar Listings
Even if you think you know the rents for your area, it’s always good to check out the local listings. Use Zumper’s search tools to find similar listings nearby. Look at the amenities offered, the location, the square footage, and other features. How does your rental stack up? If your building is considerably newer or closer to the city center, it might be worth a premium. If the unit is awkwardly laid out, older, or further out, it may need to be priced lower than the average.
2. Check Home Prices
If you’re renting a single-family home or duplex, there may not be a plethora of other rentals to compare to nearby if your area is largely apartments. If this is the case for you, research recent home sales to see what buyers are paying for homes close by. Then use a mortgage calculator to get a ballpark figure of what the homeowner is paying for their mortgage each month. You can then charge roughly 1% of that estimated mortgage value as monthly rent.
This tip is a reverse-engineer of the standard investor advice to only buy a property that meets the 1% rule. If you can buy a home and rent it for 1% of the total value, give or take other factors, it is considered a sound investment. We use this rule in reverse to determine a rough figure for monthly rent on your unit.
3. Location, Location, Location
You’ve heard it many, many times before. That’s because it’s true. Location is one of the most important factors when it comes to housing. Your property’s proximity to the city center, shopping, entertainment, and mass transit can have a huge effect on the rent you can charge. Many tenants want to be close to their school, work, food, and entertainment. If you are in a prime location, often tenants are willing to pay a premium to be close to the action. However, if your location is further out and requires a commute, you may find it harder to command a high rental rate.
4. Consider Your Amenities
For landlords wanting to raise rents, a smart investment in upgrades and renovations can give you room to increase the monthly rent. Tenants are looking for more amenities, such as a laundry room, playground, gym, or swimming pool. These amenities can increase the appeal of a rental and give you wiggle room to increase rent.
Other renovations to the rental unit itself, such as: upgraded flooring, granite countertops, new appliances, may be worth the increase in monthly income. With any renovations or upgrades, be mindful of the ROI. Do not pour money into a unit that cannot recoup that cost. Even if it’s the nicest rental in the area, you cannot reasonably charge much more than the next highest unit. When you outprice the market, you will find difficulty finding applicants.
5. Ask the Pet Question
A big factor in rentals is pets. Millions of renters own pets and look specifically for houses or apartments that will allow them to keep their pet. If you allow pets in your rental, this may give you a competitive edge over other units. This can allow you to increase rents while keeping a list of interested applicants. Some landlords choose to ask for an upfront pet deposit, or add an additional fee to the monthly rent. Online you can explore what other landlords are doing and choose how you will answer the pet question yourself.
Remember, if you allow one pet, you do not have to allow all pets. You may determine that your rental is a good fit for cats, but not for dogs. Or you may meet a potential tenant that has several large dogs. As the landlord, you can place rules (as legal) regarding pets.
6. Factor in Your Expenses
By setting rents below market rate, you can ensure a lot of applicants and a quick turnaround. You’ll soon find someone to move into your vacant unit. However, it could also result in under-qualified tenants who are inconsistent with rent. When determining rental prices, you need to factor in your own expenses. Will your rental income cover your mortgage, property taxes, home insurance, and maintenance costs? Are you hiring a property management company? Or will you be losing money each month? It is better to rent smart than to rent quickly.
Determining rental prices is always a balance. Striking the balance between a price that is low enough to encourage applicants while high enough to ensure you cover costs is crucial to your success as a landlord. Using these straightforward steps, you can figure out the right price for your unit.
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