SO YOUR PROPERTY IS READY TO RENT OUT. HERE’S WHAT’S NEXT. If you’re reading this it probably means that you’ve completed the steps necessary to prepare your property for rental—or you’re merely planning ahead, in which case we applaud you. Either way, the question of how much to charge for rent remains a critical one. Setting a rental rate treads the fine line between making a profit and keeping potential renters away. We’ve sorted through the factors you need to consider in setting your rate so that you don’t have to eat SpaghettiOs for dinner while your properties collect dust. Below, 4 things that determine how much rent to charge for your investment property:
MARKET WORTH
The amount you charge for rent is typically a percentage of your property’s market value. Before taking the percentage, you need to get an accurate value of your property.
A few factors set your property’s value in the market. Property worth is based on the condition (maybe it’s time to get that mold looked at), local home prices (yes, you need to consider the neighbors despite their creepy garden gnomes), and the location.
There are few ways you can determine the value. A quick google search leads you to some online calculators to can use as a starting point. Word of advice? Use a few different calculators, keeping in mind that some include factors that others might not. For example, one calculator takes into consideration square footage while leaving out the number of bedrooms and bathrooms. All of the above are important so be sure to choose a calculator inclusive of all important information.
Related: How To Perform A Real Estate Market Analysis
It might be a good idea to simply pay a visit to a real estate agent to get an idea of what similar properties are going for. A simple inquiry (or a few) can give you an idea of what properties with similar size and location are valued at.
After doing your research, you should end up with an accurate value for your property. Typically, the rental rate is a percentage of this value. On average, the percentage falls in between 0.8% and 1.1%. For example, if your home costs $150,000 at the moment, your rental rate should be in the range of $1,200-$1,650.
As to which end of the range to set your rate, that depends on a few more factors—ones that could mean a lower or even higher rate.
COMPETITION
Take a look at what other landlords in the area are charging to get an idea of how much rent to charge for your investment property. To do this, you can call around, pose as an interested renter and ask what the landlord is charging. Maybe even pay a few visits to other rentals and compare the condition, amenities, and location with the price they’re asking. You can also browse websites with property listings similar to yours. Are the rates reasonable? Way too high?
You want to stay competitive, offering rental rates that give your tenants a good price for a pretty sweet spot—especially compared to other landlords. Now, be sure not to go too low in an effort to compete. An extremely low rental rate may attract tenants but mortgage and utilities are barely covered and your profit is minimized.
LOCATION
Your property’s location is something to factor in when trying to determine how much rent to charge. Another property with the same updates, square footage, and number of bedrooms as your property can charge much more if it’s located downtown or on the beach, for example. Tenants are willing to pay more or less depending on your location—of course keeping in line with the rental rates of properties nearby.
You’ve got to be aware of what other properties in your neighborhood are going for. Chances are that the properties on your street all fall into the same range, so don’t stray too far from the pack. The neighborhood is something potential tenants consider when property-hunting. So, even if you’ve updated the utilities and renovated the place, tenants are less likely to rent if the other houses on the street are falling apart.
Related: Best Places to Invest in Real Estate: 7 Cities with Highest Returns
CONDITION
This is an aspect of renting out a property that should be capitalized on—a small investment in renovation and amenities can go a long way. Updated appliances like a new fridge, stove, or adding a washing machine and drier instantly make your property more desirable. This gives you room to charge a higher rental rate—again keeping in mind a reasonable rate given the location and neighborhood. When trying to determine how much rent to charge, factor in the condition of your apartment.
After considering all of these factors, you should come away with an accurate, fair, and profitable idea of how much rent to charge for your investment property.