As a rental property homeowner getting your home ready for rent is just the first of many hurdles you must overcome. Next, you’ll need to figure out what an appropriate amount of rent is for your home.
How much should I charge for rent? Thankfully, the answer doesn’t have to be too complicated. Keep reading to find out the importance of pricing your home correctly, how to do so, and tips on how to get a reasonable estimate.
A lot of factors go into the price of rent for properties. As a landlord, you should have a thorough understanding of supply and demand to help you grasp an appropriately measured rent price for your home. Also consider other crucial factors that impact rent, such as:
Then, you can get a good rent estimate by following these steps:
When looking at pricing out your rental, you first want to make sure you understand the old-school law of supply and demand. Understanding demand in the rental world understands how many tenants are actively out looking for homes.
On the supply side, you also need to know what all is out there, how many homes are out there, and how that will affect it. Anytime supply is high, it’s going to push rental prices down. So again, price and product are affected by this.
It’s essential to charge reasonable rent based on your area because it will directly impact how quickly you will rent your property. To figure out what affordable rent is, you’ll have to determine the available competition in your area. You can price your home at the market, and you will have naturally competitive pricing.
If you think your home is above market value and you price it at the same price as the market, yours should be the next one that rents.
Now, if you think your product is very similar to what else is on the market and you want to be the next one that rents, try to look at it through the eyes of a resident. You want to be the next one that rents, then you need to make sure that you are priced below that because they’re going to say, “Hey, all these homes are very similar. I want to price mine below it.”
Determining how much you should charge for rent might seem like an overwhelming task, but thankfully we’re here to help. A few things you should consider when pricing your rent is that seasonality matters. You should always know your competition and understand the school zone of your home.
Typically, the highest demand for rentals occurs from late spring to late summer. Undoubtedly, during the summer months, you will notice the highest number of people looking for rental properties.
Part of the reason summer is such a popular rental time is that it is the cadence of life. If you think about it, most people get out of school around that time, or people’s kids are getting out of school in the summer. This creates a natural cadence. The school year bleeds into someone who gets out and gets their first job.
Since most rental leases are annual, they fall right back into that natural cadence once again by the time they have children.
Another reason why the summer is such a high-demand time for renters is that it’s just a time when it’s easier to move. Going back to being out of school or having children out of school, the summertime tends to be an easier time to get big projects done for individuals and families, such as moving.
As previously mentioned, understanding your competition is another crucial element in determining your pricing for your rent. In addition to the pricing, you’ll also want to get an idea of what “normal” looks like in your area.
The other thing you want to think about is how average your house is relative to the other homes in the neighborhood. If your home fits into the box of the other homes in the community, in other words, it’s not that different. Then it’s going to be way easier to rent your home because you don’t want to sell differently. In the rental world, different means people are just not going to be interested.
Another critical thing to note about the rental world supply is that it is a snapshot in time. What this means is that it is very much competition between what is available. Most renters are not following the rental market and are not looking constantly for houses. In brief, they are a snapshot in time which means they will go out and try to find a home as quickly as possible that meets maybe three or four criteria.
For example, the school zone may be in the neighborhood they want, the school zone they want, and the number of bedrooms they want. As long as it meets their criteria, then they’re going to lease that home. So, the bar is a lot less.
Once you have a thorough understanding of supply and demand and how you should be charging rent, you can begin moving forward with getting a reasonable rent estimate.
Having some historical data that may help you determine what a house will rent for. You can find things like that on Zillow with a Zestimate.
If you have listed your property for rent and notice that people don’t seem to be expressing any interest, it might be time to take a second look at your pricing. More than likely, this is a sign that your rent is priced too high for the value of your home.
Don’t forget that rental prices are prone to changes. Specifically, this dynamic value shifts as it responds to your competition and the local market conditions. When it comes time for lease renewal, you’ll want to consider local market changes before determining whether to increase or decrease your rent prices.
The different amenities your property offers can also help to justify having higher rent prices than some competitive properties in your area. Here are just a few of the top priorities renters are looking for.
Especially in bigger cities, having available parking is a massive bonus to renters. If your property includes parking, make sure you point this out to any prospective renters.
It’s all about the location, and walkability is a huge factor in that. Being close to local things, like entertainment, food, or parks, can be a big selling point.
Feeling safe in your home is essential, which is why renters value security when looking at rental properties. Always be sure to point out any safety and security features in your home.
You’ll need to identify quickly if any white elephant issues might keep your home from renting.
White elephant issues are things you cannot change in any way. In the rental world, it may be that the home is on a busy street. Maybe it backs up to a graveyard, or perhaps it backs up to some industrial, and it’s loud.
The question of how much should I charge for rent can be a tricky one to answer, but hopefully, after careful thought, you can determine a price that is fair and valuable to your property. Don’t forget to do your research, and don’t be afraid to adjust your pricing if necessary if you’re noticing a lack of interest.
Matthew is the CEO of Evernest. He is a student of the book Good to Great and is passionate about building the best property management company on the planet (and maybe even the universe if Elon Musk will hurry up). You can usually find Matthew at the baseball field with his son, at a dance recital with his daughter, or at his favorite restaurant with his wife, when he’s not in the office. And if you can’t find him in any of those places, it probably means he’s traveling.