Investing in rental properties is a great and stable way to start getting a positive cash flow through rental income for anyone interested. When purchasing a rental property, the immediate thought that pops into every real estate investor’s head is: “What can I rent my house for?” This real estate question is a common concern amongst all rental property owners, whether they have been in real estate for a long time or whether they are looking for their first tenant. Renting your property out means you are able to get money back on your investment to pay off your mortgage or put money into your own pocket for other business opportunities. Before renting out your property, however, you must understand how pricing your rental property works.
Anyone can wonder about “What can I rent my house for?”, but finding the answer to that real estate question depends on different criteria that you must analyze yourself. In order to make the differentiation right and to keep coping with the real estate market developments, it is important to classify rental incomes into two different categories: traditional rentals and short-term rentals (Airbnb). Each rental strategy has a different pricing mechanism and thus a different answer to the question “What can I rent my house for?” because each serves a different purpose.
It is worth noting that any pricing will ultimately depend on the rental property owner because every real estate investor and landlord is different and driven by various factors.
What Can I Rent My House For? – Traditional Rentals
Understand the Value of Your Rental Property
The first step to understanding how much you should charge potential tenants for rent is to know how much your rental property is worth in terms of current market value. A property’s value is determined by many factors that include location, size, age, services nearby, and amenities offered.
The 1% Rule
This is a common rule that is well practiced amongst many rental property owners. The idea behind the 1% rule is to give owners a general rule that will make setting up a rental price for their property as easy as it can possibly get. This means that you charge for rent 1% of the market value of the type of property at the moment. For example, if the rental property is worth around $250,000 at the time you want to rent it, then by following the 1% rule, the amount of rent you should be asking for is $2,500 per month. However, for more luxurious properties that have a higher valuation, the amount of rent you charge should be less than 1%. Not many are willing to pay $4,000 in rent on a $400,000 valued property.
Related: How Much Rental Income Should You Be Making?
Renovating the Rental Property
Renting out a fully renovated property will of course increase the value of your property and ultimately your rental price. Renovating and upgrading the appliances or furniture will make your rental property more attractive to potential tenants. When the investment property is more appealing to a large number of tenants, then they can be making offers on who gets to rent the property. That sort of competition helps you push the price up without doing it directly yourself.
Real Estate is About Location
“What can I rent my house for?” Well, the answer to that question depends largely on the location of your rental property. The location of a property is one of the most important set-ups when it comes to its pricing. A location is almost a clear winner when it comes to any real estate property. If you own a rental property that is in a suburban area of a city, then chances are your attempts to drive up prices will not be very successful because there aren’t many potential tenants vying to rent a suburban house. However, if you compare this to owning a rental property in a central location of a major metropolitan city, your chances of manipulating the rent become extremely high in the latter situation. There are some areas in major cities around the United States that have a 50%-80% higher rental price than other neighborhoods within the same city just because of their location. The importance of location should not be underestimated when it comes to rental prices.
Related: Location Location Location – Is Location Really All in Real Estate Investing?
What Can I Rent My House For? – Airbnb Rentals
Valuate Your Listing by Comparison
This should be your primary goal before entering the world of Airbnb rentals and answering the question “What can I rent my house for?”. Going through the Airbnb website to find out how much properties like yours in the same location are going for is an essential step. When you analyze the prices that your direct competitors are asking for, you can have a clear estimate of how much you should be charging per night on average. For example, if an Airbnb host in your neighborhood who also has a 2-bedroom property is charging $88 per night, then you know what is the range you should be charging for per night.
Airbnb Competition
In Airbnb rentals, the question of “What can I rent my house for?” doesn’t become a marketable study that is based on your valuation of your property. It becomes more of a competitive platform with other properties that are trying to have as many guests per month as possible. For a beginner host on Airbnb, it is hard to become a super-host without accumulating a considerable amount of positive reviews from guests. To do that, you’ll need to step up your competitive edge at the beginning. Consider the previous example above; if your neighbor is charging $88 per night, then what you can do is go a bit lower than that to attract guests. Building a good reputation on Airbnb matters more than you might think, positive reviews equal trust in the host.
Related: How Your Investment Property Can Compete in the Rental Market
High Season Rentals
This is a very important part of Airbnb profitability for those who use it. When you are living in a major city and you know that tourist inflow is higher at one point during the year, then it is best you analyze how to raise your rental price for this period. In major cities like New York, Los Angeles, and San Francisco, Airbnb owners are able to make 6 months of traditional rent profit through 1 month of Airbnb rentals because of the extremely high prices during high season times. Know when the market prices are peaking and take advantage of that.
What Can I Rent My House For? – Conclusion
“What can I rent my house for?” is a question facing all real estate investors in both traditional and Airbnb rentals. The points mentioned above might help answering this question, but they do not offer a definite answer because there is no such. For every real estate investor there are different circumstances and expectations. The amount of money and work an investor is willing to commit to his/her rental property also plays a huge role in setting up rental prices to make sure the money is worth the devotion. Any time, effort, and money invested will be repaid in higher demand and profit for your rental.
For more advice on your real estate investing business, check out Mashvisor on regular basis.