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Are You Charging The Right Rental Rate?

Setting the right rental rate can be challenging for most landlords. You don’t want to set the rent too low because it will affect your bottom line and you may attract lower quality tenants. At the same time, landlords cannot make the rental rate too high because it will turn off quality tenants. If you want to maximize the profits of your investment property, here’s how much to charge for rent.

 

How to Calculate Rent for Your Investment Property

There is no ideal rental rate. Your rental price will depend on several factors such as your property’s value, the location of your property, and the quality of tenants you want to attract. Here’s what you need to consider when calculating the rental rate for your investment property.

 

1. Determine Your Current Property Value

Your rental rate should reflect the value of your property. As such, landlords must first find out their current property value in order to determine the right rental rate. Ideally, the rental rate should be 1% of your property’s total value. For instance, if the property is worth $250,000, you should charge $2,500 for rent. If you are renting units, the amount will be divided per rental unit.

If you want to find out the current value of your property, you can hire a professional appraiser, use the Federal Housing Finance Agency’s house price index (HPI) calculator, or use an online estimation tool from websites like Zillow, Trulia, or Realtor.com

Keep in mind that a property’s value will increase if there are amenities like a gym or swimming pool, units have desirable features like air-conditioning, and if the property is in a prime location. The higher the property value, the higher you can charge for rent.

 

2. Find Out How Much Other Rental Properties Are Charging

pricing | rental priceBefore setting a rental rate, take the time to survey other similar properties in the area. Find out how much they are charging for rent. You must make sure that your rental rate is competitively priced. Otherwise, you will not be able to attract quality tenants to your property. You can physically visit other rental properties in order to inspect the buildings and their facilities. However, you can also use websites like Apartments.com, Rent.com, and Zumper.

By comparing your rent to other similar properties, you are also less likely to set a rental rate that is too low. While this will surely attract a lot more tenants, you may end up attracting lower quality or difficult tenants.

 

3. Consider Mortgage Payments and Cost of Rent

 Landlords have their own financial obligations so the rental income they collect each month should be able to cover their monthly expenses. At the very least, the rental rate should be equal to your monthly mortgage. Don’t forget to include rental costs such as maintenance and repairs, HOA and/or property management fees, insurance, and utilities. If you do not account for mortgage payments and the cost of rent, your investment property will not be profitable. Instead of extra income, you may end up incurring more debt.

 

4. Remember the Rent Limits in Your State

Some states have laws on rent limits and rent increases. You want to make sure that your rental rate and rent increases do not violate such mandates. For the state of Florida, fair market rent rates and rent limits can be found here. Your state’s rental laws will also likely have stipulations for security deposits, late fees, and other rent-related charges. Some other considerations include price-to-rent ratio and income limits.

 

5. Figure Out the Average Income of Residents in the Area

Landlords can also determine the right rental rate is by finding out the average income of residents in the area. Find out how much renters are willing to pay to live in your area. This strategy not only helps determine a profitable rental rate, but it also allows you to target tenants who are the right fit for your property.

As much as possible, you want to attract tenants who pay rent on time and do not damage your property. These are also the tenants who will continue to rent your property for a long time. Thus, you can avoid losing money on eviction costs and loss of income due to unexpected vacancies.

 

6. Know How Much Rent Your Tenants Can Afford

If you are planning to increase your rental rate, make sure that it is an amount that your current tenants can afford. If you set a rental rate that is too high, even your good tenants may have difficulty paying rent on time. In extreme cases, they may even have to leave your property. Thus, your profits may still be affected by eviction expenses and turnover costs.

 

7. Hire a Property Management Company

hire | rental priceA property management company will have the expertise and resources to determine the right rental rate for your property. Apart from that, a property manager can also take over most of your responsibilities such as finding and screening tenants, handling maintenance requests, managing your online listings, and collecting rent. While a property management company is an added rental cost, property owners can enjoy the profits from their investment without the added stress of property management.

 

Finding the Sweet Spot for Your Rental Rate

When it comes to setting rental rates, landlords must be able to find the sweet spot. The rental rate should not be too high that you won’t have tenants — thereby reducing your monthly income. It should also not be too low that you end up renting to tenants who do not pay rent. Not only do you lose income but you may end up spending more on evictions and turnovers. By considering these seven strategies, you’ll be in a much better position to find the best rental rate for your property.

 

If you want to seek the expertise of industry professionals, feel free to browse our online directory for property management companies, HOA management companies, and real estate agents.

 

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