How much can I rent my house for? This is one of the things rental investors ask themselves. Let’s talk about it and other similar questions.
Table of Contents
- How Much Can I Rent My House for Traditionally?
- How Much Can I Rent My House for on Airbnb?
- Summing It Up
So, are you ready to dive into the world of real estate investing? Have you owned a real estate property for a while or have just purchased a new one to start renting out? In either case, the most important question that any landlord has to find the answer to is, “How much can I rent my house for?”
Naturally, the rent that you get from your investment property will be one of the major determinants of your profit, together with the mortgage as well as the other expenses associated with renting out a property.
When you’re trying to figure out the answer to the typical “how much can I rent my house for” question, remember that as a landlord, your should aim to maximize the profit you make from your rental property, not to maximize your rent.
The US real estate property market is a thriving one. There are lots of properties being offered for rent at any point in time. Also, you will face a lot of competition as a landlord, so you need to be careful not to set a rent that’s too high that it would end up repelling renters.
You may decide to rent your house traditionally or through Airbnb. Either way, with the help of the real estate website Mashvisor, you can easily compute how much you can rent your house for. Here are the steps to calculating how much rent you can charge.
How Much Can I Rent My House for Traditionally?
Investors who are considering renting out their houses have two ways to go about it. The first is the traditional or long-term method. This allows an investor to rent out their house for periods of six months and above.
In most cases, landlords rent out their houses to tenants for one-year periods. The lease can be renewed before its expiration, or the tenant can choose to move on to a different property.
Rental property owners who choose to go with this strategy get payments more regularly compared to vacation rental owners. Landlords know exactly how much they will get each month from a tenant, thus giving them a sense of stability for at least six months.
The downside of this rental strategy is that you could end up with a bad tenant living in your house. A bad tenant is described as one who habitually misses rent payment dues. They can also be negligent of a property, which puts the house at a greater risk of devaluation.
As a rental property owner, here are some ways you can determine how much you will get in monthly rent payments on your house:
1. Figure Out How Much Your Rental Property Is Currently Worth
First, you need to figure out how much your rental property is currently worth. Remember that this might and will most probably be different from the price that you paid for your house.
As a house-for-rent owner, one of the things you need to consider before setting rental rates is how much your house is worth at this time. It includes how much you bought the house for and how much you spent on repairs to get it up to par. You also take into account other variables, such as location, property type, number of bedrooms and bathrooms, and other similar factors.
You also need to factor in other similar properties and how much each house sold for recently. To do this, you need to perform a real estate market analysis.
While a simple calculator and a spreadsheet can do the job, it will take much longer than an online real estate platform. We recommend using Mashvisor for your real estate market analysis to get the value of your house.
There are a few ways to get your property’s value. Some of them are listed below:
Valuation Tools
One of the fastest ways to get a valuation for your house is by going online and searching for valuation tools. Some 22% of US homeowners were able to get their home’s value using online estimators or automated valuation models (AVM).
Comparative Market Analysis
Another effective way of determining your house’s value is by performing a comparative market analysis (CMA). You can work with a real estate agent for a CMA, or you can use a website like Mashvisor if you want to do it yourself.
Related: How to Make Your Own Comparative Market Analysis Template
FHFA House Price Index Calculator
If you’re on the fence about AVMs but still want to get a quick estimate of your property’s worth, you can use the Federal Housing Financing Agency’s house price index calculator. FHFA’s house price index calculator gives you a scientific approach to determining the value of your property.
Professional Appraisal
You can employ the services of a professional appraiser to give you a fair market valuation of your house. According to one survey, 28% of homeowners in the US determined their house’s value with the help of an appraiser.
Generally, appraisers evaluate the market, the property, and comparable properties to get a reasonable valuation of a house. Then, they provide you with the results in an official report.
Real Estate Comps
Comps are simply comparable properties to a subject property. They are houses with very similar characteristics and features to your own home. The properties are located within the same vicinity as the subject property. Taking a look at real estate comps will give you an idea of what the rental market is like in your location.
As mentioned earlier, the current value of your property will depend on its size, location, condition, age, amenities, features, recent improvements, nearby infrastructure, etc. You can use Mashvisor to analyze real estate markets nationwide quickly.
Related: How To Perform A Real Estate Market Analysis
2. Use the 1% Rule
If you’re new to real estate investing, you might be wondering, “What is the 1% Rule? “ Simply put, the 1% Rule in rental property investing indicates that the money you get on rent should be at least close to or above 1% of the property’s market value. It measures the property’s price against its potential gross income.
Usually, the rent that landlords charge is a percentage of the real estate’s market value. The monthly rent typically falls between 0.8% and 1.1% of the home’s current value. For example, if your home costs $150,000, you should ask for rent in the range of $1,200-$1,650.
As a rule of thumb, for cheaper properties – about $100,000 or less – you can ask for a monthly rent close to 1% of the home’s value. At the same time, for more expensive properties – especially those above $350,000 – you have to charge a rent closer to 0.8%. Otherwise, you risk not being able to find renters because of the very high rent.
1% Rule Pros and Cons
Generally, the 1% Rule is more of a recommendation than a requirement. It is a great way of quickly evaluating whether a house is worth investing in or not. Going by it gives you certain advantages and disadvantages.
Let’s talk about the pros first. The 1% Rule allows investors to make a quick evaluation of a property’s income-generating potential. It also makes calculating easy as you really don’t need a calculator to get a property’s income potential. For instance, a house bought for $250,000 should get $2,500 monthly on rent. That’s just basically taking away the last two zeroes from the property price.
On the other hand, the 1% Rule ignores interest rates and property taxes. Moreover, it doesn’t take into account other variables such as local market conditions, vacancy rates, and maintenance costs.
While the 1% Rule can be quite helpful in figuring out how much you can make on rent per month, it is not always the best way to get a fair-value price on rent.
3. Find Rental Comps
Your reason for becoming a landlord should also determine the rent you ask for. If you decide to rent out your property to help pay for your bank loan, the rent should be equivalent to at least the monthly loan payment.
Nevertheless, you can’t charge rent solely on the number of your mortgage payments. You must keep the rent attractive and comparable to similar properties in your area.
It is where rental comparables, or rental comps, come in handy. Rental comps are just like real estate comps, only this time, you’re comparing for-rent properties in the same neighborhood as yours.
One of the easiest ways to find rental comps is by logging onto Mashvisor and using the Property Search tool. Once you enter your desired location, it will generate a heatmap of the neighborhood that indicates the available properties in the area. The properties are represented by pins.
As you hover your mouse on each pin, you will get a summary box that states the details you need to know about the property, including its rental income, cash on cash return, and cap rate.
4. Consider Incorporating Costs in the Rental Price
One simple trick to increase your profit on rent a bit is to include the utilities in the monthly rent price. Take advantage of the fact that you know how much you’ve been paying for utilities in this home (if you used to live in this house).
So, if your average cost of utilities is $120, you can easily make $30 extra per month by increasing the rent by $150 and including the utilities in the rent.
To give you a better idea of what these recurring expenses are, here is a list of operating expenses to keep your rental property going:
Repairs and Maintenance
A house will always require repairs and maintenance, whether it’s a rental or not. Rental properties require greater attention, though, especially vacation rentals.
Keeping a rental property in tip-top shape will cost you. You need to factor the repair and maintenance costs into your rent prices, so you don’t end up losing more money on your property’s upkeep.
Mortgage Payment and Interest
Most rental property owners rent out their houses to help them cover their mortgages and make a decent profit from them.
Property Taxes
As a rental property owner, you need to pay your taxes. It is every American’s duty. Property taxes and other related fees vary on your location. Make sure to check with your local real estate agent or tax specialist for proper guidance.
Landlord Insurance
A homeowner’s insurance will not cover any damages to a house that is not occupied by its owner. If your house is up for rent, whether as a traditional or vacation rental, you need to get landlord insurance. It covers property damage, as well as rental income loss due to temporary inhabitability.
HOA Fees
Homeowner association fees and dues are also paid monthly. You should also factor them into your rent price.
Property Management Fees
If you’re working with a property management company, especially if your property is out of town, you need to count this as a recurring expense. It usually goes between 8% and 10% of the monthly rent. Some property managers also charge an initial setup fee.
5. Upgrade Your Rental Unit
One of the advantages of investing in real estate properties is they appreciate. It means that a house tends to increase in value over time.
There are two types of real property appreciation. The first one is natural appreciation, where the property increases in value as the neighborhood rises in value over a given period. The second one is forced appreciation, where upgrades and improvements are made to increase the property’s market value.
As a rental property owner, if you want to get more monthly rent on your house, you should also consider upgrading your rental unit. It is really an investment as you can increase your profit by bringing the monthly rent up after making a few upgrades to your property.
For instance, buying a new stainless steel fridge or a dishwasher will significantly increase how much you make on rent monthly. Similarly, adding some low-cost furniture can lead to higher monthly rents.
Here are a few other simple ideas to increase your property’s rental value:
- Improve your property’s curb appeal
- Repaint your exterior and interiors
- Replace your roofing
- Add a patio or deck
- Install new flooring
- Add kitchen cabinets and a backsplash
- Make improvements to your bathrooms
How much you do on your home improvement will determine how much you can charge additionally on your monthly rent. Just make sure you don’t go overboard and end up with a really expensive property that no longer fits your neighborhood.
No matter how perfect your property is, if it is well beyond the reach of people, you will end up with a loss instead of a gain.
How Much Can I Rent My House for on Airbnb?
Alternatively, you might be looking to rent out your investment property on Airbnb. It is the second strategy available to rental property investors. Offering your house on Airbnb gives you some flexibility in setting the rent, which you can’t enjoy in traditional renting. It also gives you greater income-generating potential.
As an Airbnb rental owner, you get to enjoy certain perks that landlords don’t. On top of getting potentially higher monthly income on rent, you can also get your property listed according to your preferred calendar. You may choose which time of the year to rent out the house and when to take it off rental listings.
As an Airbnb host, you can calculate how much you can set your rent price using the following:
Related: How Do I Price My Airbnb Property?
1. Estimate Your Daily Rate
As an Airbnb host, you need to know how to figure out how much your daily rate is. Airbnb charges guests daily rates much like a hotel.
You can get a rough estimate of how much you can charge per night if you divide your monthly rent (see how to calculate it above) by 30. It may seem too simplistic, but at least it gives you a basic idea of how much you can charge. You can do it using Mashvisor’s Airbnb calculator, or you can simply take out your calculator and do the math yourself since it’s simple enough.
2. Find Airbnb Comps
Just like a traditional rental property, if you want to see accurate rent prices in your neighborhood, look for comparable properties listed on Airbnb. The Airbnb comps will give you an idea of how much the average rent price is in the area. You will also get to know the Airbnb occupancy rate and how much you can make on potential income on rent with their cash on cash return and cap rate.
Check out other comparable listings in your area to get a feel of what rents are in your neighborhood. You can’t ask for more than what everyone else is already charging unless you offer more than they do.
You can use Mashvisor’s Property Finder tool to find Airbnb comps to give you an idea of the rent prices in a particular neighborhood. Just enter the following information:
- City
- Budget
- Property Type
- Number of Bedrooms and Bathrooms
After you’ve entered the required information, set the rental strategy to Airbnb. Mashvisor’s AI will then assess and rank the top properties similar to yours according to cash on cash return. You can pick any of the Airbnb comps to use for comparison and analysis. Doing so will enable you to get a better idea of how much to charge on rent for your vacation rental.
3. Start Charging Low and Adjust Rates Later
If you’re new to short term rentals, start low. You need to focus on getting your first guest who will provide you with your first positive review. If your property has no reviews, you are less likely to get a lot of customers. So, you need to work on accumulating a few positive reviews. It will then attract more people to your business, even if it means lowering your estimated rent a bit.
Don’t think of it as short-changing your property. Think of it as an introductory price. Lower rent prices tend to attract more guests. Remember that most guests use Airbnb because they’re generally cheaper than hotels and resorts.
Setting a low rent price will catch the attention of potential guests. If you include an accurate description of your property and high-quality photos, people are more likely to make inquiries and book reservations.
Once you’ve had a few happy customers, you can then try to increase the rent price a bit. If people are still willing to rent your property, it means that an increase in rent soon is a possibility. On the other hand, if customers stop coming in after a price hike, you are probably asking for too much.
Setting daily rent prices for Airbnb properties is an art in itself. You just need to figure out when to increase rent prices and when to lower your rates.
4. Take Advantage of Additional Charging Options
Other factors also affect rent prices for Airbnb properties. You can take the following into consideration when setting daily rent prices for your Airbnb rental:
Security Deposit
Once you’ve set a rent estimate, it is a good idea to factor in a security deposit. It is different from insurance and covers such things as broken chairs, destroyed floors, stolen dishes, and many others.
Incorporating a security deposit in your Airbnb rent is wise because it gives you an added layer of protection. If a guest accidentally does damage to your property, you can use part of the security deposit for repairs or replacement. Including a security deposit in your rent also encourages guests to be more mindful and behave appropriately.
You may never need a security deposit, but it is good to be on the safe side. The amount should be about the value of one night’s rent.
Cleaning Fee
Another thing you can add to your Airbnb rent is a cleaning fee. Many first-time landlords overlook the cleaning fee when they create their first listing. Whether you decide to do the cleaning yourself or hire someone to do it for you, it will cost you money.
So, incorporating a cleaning fee into your rent will help you pay for this expense. It will vary significantly, depending on the size of the property, but a $50 cleaning fee added to your rent is a good starting point.
Extra Guests
You can also choose to charge additionally for any extra guests. If the size of your rental property provides for two guests to stay comfortably, you can allow a third and a fourth person in for an extra charge.
The rationale for doing so is obvious, as more people create a higher chance for something to go wrong. It also helps pay for additional things like mattresses, beds, linens, and other related things that an extra guest will need.
5. Know Your Peak Seasons, Holidays, and Special Events
Another thing you must know is there are different rent prices for special events, holidays, high season, and weekends. In this manner, Airbnb renting is very similar to hotels where seasonality affects prices. That’s why there’s what you call a peak and an off-peak season.
Peak seasons bring in greater demand for rental properties. It is when rental property owners take advantage of the time of year and charge a little more than usual on rent. Once things slow down and transition into off-peak months, rent prices usually go down a tad as well.
As an Airbnb owner, remember that demand will drive your price. When demand is high, the rent can also be higher.
6. Continuously Monitor and Optimize Your Daily Rates
Finally, when deciding “how much can I rent my house for” on Airbnb, you should keep in mind that setting the rent is not a one-time decision. You should always keep an eye on the market and current demand and adjust your price accordingly. The market is constantly changing, and you need to keep up with the changes.
Be in the know about the latest trends and what the current developments are in your neighborhood. Being aware of the overall market condition will help you get a good idea of the movement of rent prices in your area. Be in tune with the events going on around you and adjust your prices accordingly.
Summing It Up
So, just how much can I rent my house for? Hopefully, we’ve given you more than enough information to get you started on setting the right rent prices for your property. Take the rental strategy and all their respective variables into consideration and you’ll do just fine.
To make things easier, use a real estate website like Mashvisor to make property search and rental market analysis faster and easier. It will allow you to search for rental comps with highly accurate numbers so you can also get highly accurate rental income projections for your property.
To access Mashvisor’s rental income forecasts and other real estate investment features, sign up for a 7-day free trial today, followed by 15% off for life.