Knowing how to establish profitable rent for your property and list at a competitive price to attract quality renters is essential knowledge for any independent landlord.
It might not be easy to settle on fair rental property pricing. Setting the rent price too high might result in long-term property vacancy, so resist the urge to go aggressive and charge more than comparable apartments in the region. Setting the rent too low, on the other hand, will harm your revenue.
Included in this article is some advice on determining the optimal rental pricing for your property, methods for obtaining an accurate rent estimate, and the significance of factoring in your building’s facilities when determining your asking rent.
Why Should I Always Charge Appropriate Rent?
To determine what constitutes a fair rental rate, it’s worth noting why it’s crucial to get the asking price just right:
1. Appropriate Rent Helps in Finding Right Tenants and Get Timely Rent
An overwhelming majority of property managers (84%) cited payment issues as their primary worry in a poll conducted by TransUnion. It is to be expected, given that the price tag of eviction due to nonpayment might reach $10,000, and that doesn’t even include the time and money needed to replace an unforeseen vacancy.
Rates that are too cheap for the market and the property may not attract the best tenants. A lack of renters means no monthly rent money if your prices are too high. As a landlord, it is up to you to strike a balance between charging too much and charging too little in terms of rent.
Factor in the typical income of the area’s residents. If you want to rapidly fill your space with tenants who can afford your rent without worrying about late payments, you should price it at a level that appeals to people with comparable earnings.
2. Appropriate Rent Helps in Covering Mortgage Costs
Real estate is an investment; if you aren’t making enough rent to cover your costs, you haven’t established a fair rate.
3. Appropriate Rent Helps in Maximizing the Rental Profit of Property
The Balance reports that landlords can keep zero to six percent of their monthly rental revenue by setting the rent price just right.
Rental Property Pricing: How Much Can I Rent My House For?
While it’s evident that charging a fair rent is crucial, determining that figure may take time and effort. Finding your home’s optimal rental price requires carefully considering several criteria.
1. Know the Competition
The annual rent increase reported by Apartment List’s national rent index may be seen in nearly all of the country’s main areas. The fact that rents are going up throughout a wide swath of the United States is valuable knowledge to have “generally.” However, before deciding on a rental fee, you should research what other local landlords are charging. Yardi Matrix reports that in June of 2018, the median rent in the United States was $1,405, up significantly from the median of $602 in 2000.
The standard deviation of this number varies widely between jurisdictions. Rents in large cities like San Francisco and Los Angeles, for instance, are likely to be among the highest in the country, whereas in smaller communities with less economic growth and job prospects, rents may be lower.
Rent prices should be set after careful consideration of local market conditions. Find out what other property owners are charging for similar rentals, and use it as a benchmark. Then, modify your rent to reflect the new information.
Fair market value estimates are another benchmark revised annually by the Department of Housing and Urban Development of the United States (HUD).
Look at the asking rents of nearby properties comparable to yours in size, location, and upkeep. For a more in-depth evaluation, you can also use web tools like Rentometer to acquire brief views of houses around your rental area.
2. The 2% Rule Is Not Always Worth Following
There is a rule of thumb among some landlords that says rent should be 1%-2% of the property’s worth. Note, however, that this is only a rough heuristic to gauge your future rental costs. It’s not a replacement for checking out rent prices and other similar listings in the area. Property prices have increased more rapidly than rents in recent years. Thus, this comparison may need to be more accurate.
3. Seasonality Affects the Rent Prices
Rent costs fluctuate significantly with the seasons. In most parts of the country, the demand for rental properties peaks in the spring and summer and levels down in the winter. It occurs for various reasons, the most prominent of which is that tenants find it more troublesome to relocate during the colder months. Most people would instead not move their families in the middle of a snowfall or during the school year. Apartment List found that although 25% of renters who begin their search in July move within 30 days, 22% more renters who start their search in January take more than 90 days.
If you own a rental property, remember that the vacancy rate is likely higher in the winter because fewer people are looking to relocate. If a landlord is concerned about having an empty apartment during the winter, they may choose to reduce the monthly rent payment. The main point is that you may not be able to get the rental rate you want if you advertise your property in the winter.
4. Budget For Maintenance, Repairs, and Utilities
Plan for the expense of repairs and maintenance with the aid of accounting software or a simple spreadsheet. Maintaining a rental property annually might cost as much as one percent of its worth. Therefore, it’s a good idea to put fifty percent of your rental revenue into upkeep. Get an estimate of the utility expenses incurred after the property is occupied if you want to factor the cost of utilities into the rental fee, such as gas, electricity, water, sewage, and garbage.
How Can I Rent Out My House?
Asking, “How much can I rent my house for?” indicates that you’re interested in learning how to rent your home. Setting a reasonable monthly rental fee for your house is an essential first step, but there’s more to it than that.
If you’re thinking about renting out your home, here’s a brief primer:
Step 1: Reassess the Mortgage
A homeowner who intends to rent out their property must ensure that the mortgage and insurance policies accommodate a tenant who is not the owner. Before moving forward, make the necessary adjustments by calling your lender and insurance company. The consequences of not doing so are real.
If you need to enhance your coverage, your insurance provider can help you figure out how. The cost of homeowner’s insurance is typically 15% to 20% lower than that of a landlord policy.
Step 2: Set Reasonable Rental Price
Rental pricing can be determined in several ways, including by local market data, as a percentage of the house’s worth (between 0.8% and 1.1%), or by the landlord’s ability to pay. Mortgage, taxes, insurance, upkeep, and so on should be all factor into your monthly rental price.
Expect to pay between 8 and 12 percent of your monthly rent to a property manager, whether a real estate agent or a property management firm.
Step 3: Understand Local and State Tenant-Landlord Laws
When it comes to when and how a renter can occupy your property, landlords must follow all applicable local, state, and federal laws. The rights of both landlords and tenants should be known.
Read the Fair Housing Act and the Fair Credit Reporting Act to learn about your rights as a landlord regarding tenant screening and selection, as well as general interactions with renters.
Step 4: Get the House Ready to Be Rented
Having a residence that is clean and ready for a new tenant is essential in this competitive rental market. The images you take to put your home up for sale should be taken after a thorough cleaning and organization effort. Make it clear if the house comes equipped or unfurnished and if there is furniture in the photographs.
To ensure your home is ready to be rented out, you should check with your local government to determine if any inspections or permissions are necessary.
Step 5: Start Finding Potential Tenants
Landlords should now begin their search for tenants since this is one of the most crucial decisions they will make.
Step 6: Start Collecting Rental Applications
After a qualified applicant has passed the first screening process, you may request more information, such as a completed rental application, credit, and criminal background check. These may be made from scratch or using a template found online.
Step 7: Get a Lease Signed by the Tenant
Your house is almost ready for renters. After making your tenant selection, you need to have a lease. The lease agreement specifies the rights and responsibilities of the landlord and renter.
When the lease is signed, you should collect the security deposit, the first and last month’s rent, and any other necessary costs.
How Important is it to Set the Right Rental Rate?
Landlords can reap significant benefits from setting reasonable rental prices, as was referred to in the previous section. Let’s examine a few details to help you see why putting a fair rent is crucial:
1. Correct Rental Rate Helps You Cover Mortgage
Landlords have a lot of expenses to pay, including the mortgage, insurance, taxes, upkeep, and more. The key will be settling on a monthly rental amount that covers all you need to pay. It would help if you didn’t have to drain your finances or take out a loan to cover the cost of renting out your home.
2. The Right Rental Rate Will Maximize Profits
Setting a reasonable rental price for your house might result in a profit after deducting all expenses. Being a landlord may bring in less money than you initially intended, but any money is better than none.
3. The Right Rental Rate Will Help in Finding a Good Tenant
Finding a renter who can afford the rent each month is the primary aim, and offering affordable rental prices is one way to attract quality tenants. If your rental is too high, no one will be interested in it, but if it’s too cheap, the wrong sort of tenant may be drawn to it.
Setting a monthly rent price is only the beginning of renting your home. Remember that basing your rent on your home’s value is one of the simplest methods to determine it and that the general rule is 0.8% to 1.1% of your home’s value. The next step is to consider your financial responsibilities and local rate alternatives.
Get a renter to sign a legally binding lease once you have researched them, lowered your costs, and revised your insurance and mortgage.
Remember that you are running a company when you rent out your home. If you want to make the right decision, you need to think about it objectively and not let your emotions get in the way.