How Much Will Your Property Rent For?
Determining how much rent you can charge for your rental property is a question all investors face. Unfortunately, it’s not as simple as saying, “You know, I think this place is worth $x per month, so that’s what I’m going to ask for.” Instead, it takes careful consideration of a number of factors so that you can keep your prices competitive while still generating maximum profits.
To get a baseline range, some in the industry advise using a percentage of the home’s appraised value. That percentage usually falls between 0.8 and 1.1%, which means that a home valued at $100,000 could feasibly rent for between $800 and $1,100 per month. While this information can be useful, you really need to dive deeper into the property’s unique features to get a more accurate rental rate.
Here are a few of the areas you must factor in before setting a rent price.
The first thing you’ve got to look at is the market you’re in. Is it growing or declining? The hallmarks of a growing market are: increasing population, expanding job opportunities, new construction, and an economy that is trending upward. If these characteristics are in place, congrats – you’re in a growing market! As more people move to the area, demand for housing will increase and you’ll be able to charge more for your rental than if you were in an area that was on the decline.
Next up, we zoom in on the smaller, more specific location of your property. All major cities have good and bad neighborhoods, and your rental rate will be reflective of which type of neighborhood your property is in. If you’re in a good part of town (i.e., low crime rate, good schools, attractions like shops and restaurants nearby, clean and aesthetically pleasing), you’ll be justified in charging a higher rent. However, if you’re located in an area that’s known around town as being unsafe or just generally “bad,” your rent rate will suffer.
Property Type & Quality
The property itself will also play a large role in determining the appropriate rental rate. Obviously, square footage will matter. Bigger houses generally command larger rents, as do having more bedrooms and bathrooms. Having a standard layout (as opposed to a custom-build) helps too, because people usually want a home that is functional and familiar. The condition of the property will also come into play. If your place is old, dirty and run-down, you can’t expect people to pay top dollar for it. However, if it’s newer and things are in good condition, you can rightfully charge more. Also, I’m just going to state this for the record: cleanliness goes a LONG way in convincing someone to rent your unit. Even if your refrigerator isn’t brand new, people won’t mind so much as long as it doesn’t have the last tenant’s old takeout container in there.
Amenities & Upgrades
Other selling points that can work in your favor are the amenities and upgrades that come with your property. Some of these amenities might include laundry facilities on-site, a playset in the backyard for kids, an outdoor area, or “smart” tech such as programmable thermostats or a security system. Being able to advertise perks like these allows you to charge more for your unit.
Lastly, you must consider the local comps of similar rentals in the area. This is extremely important, as your competitor’s rates will give you insight into the range you can justifiably rent your property for. It will also show you what’s available to prospective renters in your area, so you can tailor your property or your rate to be more competitive.
Obviously, there’s a lot to think about when trying to come up with a fair rental rate for your property. Be sure to look at each factor closely. You want a price that is competitive yet reasonable that will net you positive cashflow each month.