The price of your rental can make or break your experience as a landlord. Read how to accurately determine your rent.
Deciding on a fair rent rate for yourself and your tenants can lead to a much more successful, and financially healthy, rental business. Pricing a rental accurately can be difficult, but here are some best practices to get you started!
1. Determine the Current Value of Your Property
In order to begin calculating what you need to charge, you need to understand what the value of your property is currently. Don’t just go off of what you paid for the property, otherwise you might end up a little bit off, which can lead to a large loss of income over time.
Zillow and Redfin both have estimates of what your home may be worth to help you get started, but we recommend getting your property professionally appraised. A professional appraiser will be able to assess the current condition, such as upgrades you may have done since it was last sold, whereas an online tool will only consider the historical value and a few other factors.
2. Follow the 1% Rule
After you have an accurate assessment of the market value of your property, we recommend getting a baseline rental price by following the 1% rule. This rule is a popular tool among landlords and means you should charge 1% of the property value a month. For example, if your property is worth $200,000, the monthly rent should be $2,000.
There are a few caveats to this rule, however. If your property is on the higher end for the area it’s in, it may be a good idea to consider charging a lower rent so that you can find tenants more easily. Even if your property is that valuable, the rent being too high for the area may make living at your property unaffordable for most. One way to make sure you aren’t charging too much is to do your research on what similar properties in your area are charging for rent. You can use different online tools to help you with that, such as Craigslist or Zillow, or you can even call around to ask about pricing yourself.
When comparing your property to similar properties in the area, remember to look out for what amenities those properties offer vs your own. If a property is similar in size and finish to yours, but does not have a dishwasher, then your property is worth more and the rental price should reflect that.
3. Research Your Local Rent Laws
Only a few states have rent control laws, but the ones that do can limit how much a landlord can charge for rent, and change that amount each year. Rent control amounts are set locally in the states that have them, so the price can change depending on the city.
The following states that have rent control laws are:
- California
- Maryland
- New Jersey
- New York
- Washington, D.C.
If you are in one of the states mentioned above, check with an attorney on what the local laws are to ensure your rent is inline with local regulations.
4. Adjust Your Rent Based on the Season
Not all seasons are created equal when it comes to attracting new tenants. While the spring and summer months show high demand for rental properties, fall and winter months have lower demand. This means that what you might offer for rent for new tenants may need to adjust based on the demand in those months.
What you need to consider when you’re thinking about lowering the rental rate in the winter is: how long can you afford for the property to be vacant before it begins affecting your bottom line? If you can wait longer, then you can opt to not lower your rent. If you need a tenant quickly, you may want to consider lowering the rent in order to attract more interest.
Conclusion
It's important to charge a fair market rent for your property because it will lead to fewer vacancies and longer tenant tenures, and can also increase how many prospective tenants are interested in your property. Having more applicants for your property will also allow you to pick out the best ones from a larger pool, which will result in fewer headaches down the road. Taking the time now to determine the best price for your property will result in longer term success for your rental business!