Finding the right price for your rental property is an important part of being a successful landlord. While you might want to justify all the hard work you put into the home by raising the rent price sky high, that might deter prospective tenants. You’ll need to walk a delicate line to develop a fair price that will attract the right tenants and also maximize your financial goals. The right price should help you repay your mortgage, account for any necessary property fees and taxes, and comfortably afford all the miscellaneous setup and maintenance costs.
Understand Your Audience
If you could picture your ideal tenant, who would it be? A dependable middle-aged couple? A quiet wealthy international student? Young and trendy hipsters?
Understanding who you would like to live at your property can be just as important as finding a tenant. Those trendy young college students may be likely to cause damage to your property if they’re always throwing parties. A tenant who is often away may make your property a target for break-ins or vandalism. That wealthy international student may pay higher rent, but might have to leave the country after the first year.
Setting a price for your rental should attract specific groups of people; if you set it too high you will lose precious opportunities. Set it too low and you could miss out on an upturn in the market after you’ve secured that 3-year lease. Finding the perfect tenants should be a priority, and when you’re pricing out your rent make sure that you are targeting the audience that you think would be the most beneficial to your property.
Research Helpful Data
Anytime there’s talk of property markets and home values, you’ll find yourself surrounded by numbers, graphs, and forecasts. While much of this can be overwhelming, it’s important to find those relevant and accurate figures that you can utilize to inform your approach.
How much has rent increased in your neighborhood? What is the average cost of a home today versus 5 years ago? What is a good credit score for a tenant to have? What is your income to rent ratio and will that impact your decision to aim high or keep your value conservative?
Make yourself aware of any statistics and data that can empower a landlord to make a more informed choice.
Get It Appraised
Before you set the rent, you’ll want to figure out the current value of your property. This can be done several different ways. Websites like Trulia offer appraisal estimates based on the location and current rental rates of adjacent properties in the area.
Alternatively, you could bring in a professional appraiser for a real estate evaluation. They’re likely to give you a more detailed evaluation, since they’ll be able to assess the physical condition of the property and more closely consider its amenities. But the downside to this approach is that it becomes costlier than utilizing one of the services listed.
Do It Yourself
If you want to save money and you’re feeling extra confident, do it yourself! Typically rent will come from a percentage of the cost of the property and can range anywhere from 0.8% and 1.1% of your home’s value. A general rule of thumb is if the property is valued at less than $100,000, you can feel confident in charging closer to 1%, but if it’s on the more expensive side (over 350k) you may want to bring this figure down closer to 0.8%, at least to keep it competitive.
But, if all else fails you could opt for the easy route and simply research the rental rates in your specific area. Try to find properties that are comparable to yours and identify their current value. At the least, this will provide a solid base for you to expand on.
In any case, once you’re ready to lease your rental property, you can always discern whether you’ve set a fair price by the responses of prospective tenants. If you’re too high, you won’t see much action. If you’re too low, you’ll probably be flooded with inquiries.