Renting Out Your House? How Much Should You Charge?

The question, “how much can I rent my house out for” is one that plagues real estate investors everywhere. This article has all the answers.

Table of Contents

1. The Perks and Costs of Owning Rental Property
2. I Am Renting Out My House, How Much Should I Charge?
3. Conclusion

Whether you want to save for retirement or receive financial rewards in the short term, learning how to invest in real estate and rent out your house is a surefire way to earn a steady flow of income. Landlords reap the benefits but also understand the hassle involved in managing the properties and maintaining good relations with tenants. 

Owning rental property is not a passive job, and there’s a lot of work and maintenance that comes with becoming a landlord. Yes, you can hire a property manager to take care of all the logistics, from managing tenants to collecting income, contacting contractors, maintaining the state of the house, and adhering to requests and complaints.

Investing in real estate is an excellent business prospect. There are many opportunities right now to make money in the housing market due to the positive economic and market trends. The 2022 US housing market is looking sunny side up, and investors are taking advantage of every opportunity to discover how to make their investments a killer profit. 

You can earn a good income by knowing how to price and rent out your house. If you are thinking, “how much can I rent my house out for?” you came to the right place. You’ll discover how to calculate rent based on your property’s value. In such a way, your rent will pay off your mortgage and align with your property’s value over time.

Related: How to Buy a Rental Property Using Mashvisor

The Perks and Costs of Owning Rental Property

There are advantages and disadvantages to owning and renting out your house. It is advisable to know what you are going into so that you are not surprised by what you come across. You should also know how much you should charge using the rental calculator you will discover later in this article.

Here are the perks and costs of owning a rental property.

Perks of Renting Out Your House

If you are thinking, what are the perks I get when I rent out my house, there are a lot of advantages when you rent out your house. Below are just some of the benefits from renting out your house. 

1. Steady Income

Everybody wants a steady income, and collecting rent for your house, no matter how much you get, is how to do it. So, to get higher and consistent rent money for your house, keep the property in the best shape possible. 

How can you do it? Simple. By doing routine maintenance on the house to keep your tenants happy. Also, use an online calculator to ensure you do not lose your rent money.

It is a major incentive for why most people invest in real estate and rent out their houses. By renting out your house, you receive a constant flow of income monthly. The rent will help pay off your mortgage and hold on to the house as its value appreciates over time. Sometimes, it is not only about how much you charge as rent but how much you earn consistently.

2. Tax Breaks

Rental income is taxable; however, landlords get tax deductions for owning rental property, allowing them to deduct specific expenses on their taxes. How much you earn back is a result of how savvy you are tax-wise or how brilliant your tax advisor is.

Common tax deductions include, but are not limited to;

• Repairs
• Depreciation
• Legal and professional fees
• Employee compensation (if you hire someone to work for you)
• Casualty losses (if your property was damaged by natural disasters, i.e., wildfires and hurricanes)

With the above tax deductions, you can be protected against loss, which will, in turn, boost your net profit. 

But how do you ensure that you receive a tax break? Hire a good tax adviser. They can tell you how much you earn, and also, you can learn from them because they can show you how to go about getting tax breaks.

3. Long-Term Financial Security

Achieving long-term financial security is a no-brainer. Investing in real estate allows you to gain financial freedom and security for the long term. It is a great investment for securing your retirement plan. 

Also, the value of your house will increase much more. When you finally decide to sell the home, it will be significantly worth much more than the amount you paid for the home. Win-win.

You can rent your house out for as long as you want and still make your monthly income. Even when you finally decide to sell, you will sell the house for much more than you bought it. It is because properties increase in value over time.

4. You Are Your Own BOSS

Renting out your house is a business. You call the shots on all decisions concerning contracts and terms, selecting tenants, and making sure money keeps coming in. Therefore, if you are the type of person that subscribes to the idea of never answering to a boss, owning a rental property is a great way for fulfilling that dream.

You can get a loan from the bank to purchase a rental property. You then rent your property out, thereby making money every month, just like any other business. The rent you collect will be money in your pocket after paying your mortgage for the property. 

Collecting rent is a passive way to make money today, and your rent will provide cash flow that you never go broke again, as long as you still own the house.

Costs of Renting Out Your House

If you are asking, how much will it cost me to rent out my house? Here it is. Renting out your house for the cash flow is not all rainbows and roses. There are some disadvantages you come across when you own a rental property, and some of them are:

1. Taxes and Fees

Landlords face the cost of property taxes, insurance on the property, and fees associated with their rental property. Unfortunately, there is no way out when it comes to paying the said expenses. For example, you will need to pay income taxes on your property. If you decide to sell it, the amount you sold it for will be subject to capital gains taxes.

When you rent your property out for profit, you will be subjected to many fees and taxes, just like any other business owner. But don’t worry. If you calculate your rent price well using the calculator mentioned in this article, you’ll be able to pay the fees with your rent money.

2. Maintenance and Repair

When you rent out your house for profit, you are bound to encounter maintenance issues and repair costs to keep your rental property in tip-top shape and increase its value. Unfortunately, you, as a landlord, cannot escape such an important cost. However, there is a silver lining, maintenance and repair costs can be tax-deductible.

As I mentioned before, a good calculator will ensure that you rent out your property at a fair market value and make a profit for the property. Your rent will pay for all your fees and costs while putting some extra change in your pocket. Ensure that the property is good for inhabitants so that when you rent it out, it brings in more cash.

3. Bad Tenants and Working With the Wrong People

Don’t rent out your house to bad tenants because it is a huge headache. It may also lead to eviction notices and legal disputes for the flimsiest reasons. To avoid such a mess altogether, run background checks and ask for references before you rent out the house for profit. 

If you omit the background checks and rent out your house to a bad tenant, you will deal with lots of problems and legal nonsense before you get rid of them. It will take a lot out of you both mentally and financially.

Therefore, make sure that you rent out your home to a good tenant. Find one who will not disturb you and would be a pleasure to do business with. Remember, do not rent out your home to a terrible tenant just for money. Do your homework before you rent out your house because it will give you peace of mind for as long as they remain your tenant.

4. Vacancy

Unexpected expenses and vacancies are inevitable when you rent out properties for profit. Your best bet is to have a savings fund or a financial cushion to mitigate this risk. If you rent out your houses for cash flow, look into how to create a financial buffer to avoid financial stress.

It is advisable to prepare an email list of possible renters who are looking for a place to rent. This way, you can market your vacant homes to them when one of your tenants decides to leave. By doing so, you will see a steady flow of tenants, and you won’t be left with an empty property taking money away from your pocket.

Related: 5 Risks That Come With a Rental Property and How to Mitigate Them

I Am Renting Out My House, How Much Should I Charge?

So you own a property you want to rent out, but there is one issue that keeps you up at night: how much should you charge for your rental property? Such a dilemma plagues every property owner, and you are not alone. Here, we will make the process of coming up with a number to charge as rent easier for you.

There are three main ways to figure out how much you should charge when you decide to rent out your property for profit. They are:

• Know your home’s current market value first
• Use the 1% Rule
• Use Mashvisor’s calculator

Know Your Home’s Current Market Value First

You will not be able to accurately price a property you want to rent out for profit if you do not know how much your property is worth. Knowing the current value of your rental property is important because it can help you calculate the rental amount to charge.

To calculate the monthly rent, find your home’s current worth in the market. After knowing your home’s market value, you can charge a certain percentage of it as rent. Usually, the rental rate ranges from 0.8% to 1.1% of the total market value. For a house valued at $350,000, you can earn between $2,800 and $3,850 in rental income every month. 

It is worth mentioning that the current value of your home may not equate to the original price you paid for the home. To deal with the matter, you can hire a home appraiser to give you an accurate assessment of the real value of your property in the market. 

Use the 1% Rule

The 1% Rule simply means checking whether the monthly payment obtained as rent will exceed the monthly mortgage payment or the rent should equal the monthly mortgage payment. The formula for the 1% Rule is:

1% Rule = Property Price * 0.01

For instance, you purchased a property for $250,000. According to the 1% Rule, you will multiply $250,000 by 0.01. The result will be $2,500, which will be the amount you charge as your rent every month.

One more thing, if your mortgage payment is $2,500, make sure that your monthly rent is equal to that amount or more than it. It is so that you do not end up incurring losses on your investment property. You bought the house for profit; don’t end up using it as charity.

Related: How to Have a Positive Cash Flow Income Property

Limitations/Risks to Using the 1% Rule

There are some drawbacks when you rent out your property for profit using the rule. One of the limitations is that it does not take into account factors such as house maintenance, taxes, and other dues that you’ll need to pay as a homeowner. Such omissions can significantly impact the return on investment of the house.

Also, the 1% Rule does not take into account the price appreciation of the property. It means that when your property goes up or down in value, your rent remains the same. It is bad when your property goes up in value, and you can’t raise the price of the rent for more profit.

One more limitation is that it works only when the property is not too expensive. It means that properties that can generate 1% monthly work better for less expensive properties. Therefore, if your property is less expensive, the rent you got using Mashvisor’s online calculator will help you determine a fair rent.

Use Mashvisor’s Calculator

Another way to learn how much to charge as rent is to use an online tool like Mashvisor. This platform will help you accurately determine how much rent you should charge for your properties.

Mashvisor is an analytical platform that is data-driven. The platform has been helping real estate investors determine whether the investment property they are looking at is a good investment or not. It significantly reduces the risks facing new and experienced real estate investors when investing in a property.

Mashvisor helps real estate investors set their rental rates through its online rental rate calculator. All you need to do is enter the address of your rental property to get the rental estimates. The estimates will give you a rough idea of what you should charge as your rental fee without doing a lot of research on your own.

With Mashvisor’s online calculator, you can get the estimated rent of your property and the estimated cash flow it will bring in every month. Through the calculator, you will be sure whether your investment property will make a profit for you or not. And you won’t need to scratch your head when thinking, “how much should I rent out my property?”

Conclusion

This article answers the question of how much can I rent my house out for, whether you are a new or experienced real estate investor. So far, we’ve discussed the perks and costs of owning an investment property. We’ve also talked about how much you should charge if you’re renting out your house. 

We also discussed how you would calculate how much you should charge for your rental property. We mentioned that you should either know how much your house is currently worth, follow the 1% Rule, or use Mashvisor’s online calculator.

The methods mentioned above to calculate your rental rate are good. However, if you want to bypass the hassle of calculating your property’s current market value by hand, focus on using Mashvisor’s online calculator as a one-stop platform to lessen your research time.

Mashvisor does not only brings down your research time to 15 minutes, but it also significantly reduces your risk of losing money on your rental property. Therefore, before you make any major investment move, ensure that you run the property through Mashvisor’s online calculator to see whether the investment is worth it or not.

Click here to start your 7-day free trial with Mashvisor, followed by 15% off for life.