5 Tips to Determine How Much Rent To Charge
Figuring out how much rent to charge can be confusing and complicated. However, these helpful tips can help make the process easier.
If you’ve set rents before, then you’ve probably heard the old saying:
“The right rent is the rent you want.”
Great sentiment. Unfortunately, it’s wrong. The statement should read, “The right rent is the rent you can get.”
The trick is in figuring how much rent you can get without leaving money on the table.
So it makes sense to spend some time and energy figuring out what you can (and should) charge.
Here’s how to approach finding the answer.
Consider Your Bottom Line
A good place to start is with your base price: How much rent to you have to charge?
Some first-time property managers assume the answer is, enough to pay the mortgage.
But that’s only part of the calculation.
You also want to build coverage for taxes and maintenance costs.
Are you going to allow pets? If so, what will that add to your cost for maintenance and cleaning before the next rental?
And don’t forget vacancy costs. Those are the costs you incur maintaining the property while it’s vacant.
The right rent is the amount that covers all those items.
Consider the Unit’s Value
A long-standing rule of thumb is the one percent rule:
Try to set a gross rent that nets 1% of the property’s total value each month. A range of .8% to 1.1% provides some negotiating room.
(This rule also works well for evaluating potential rental properties for purchase.)
If you’re renting a house, consider having it appraised by a professional before setting your rent target.
Other factors also contribute to the desirability of your rental property:
The Unit Itself
Does it have a view? A view of the riverfront counts for more than a view of the parking lot.
How large is it?
What floor is it on? Higher is better if the building has an elevator. If it’s a walk-up, desirability drops for every floor above three.
What’s the floorplan? Railroad-style apartments and houses tend to be less desirable.
Does it have updates? If so, how recent?
What about extras? Additional closets, balcony, alarm system, fireplace, hardwood floors and Wi-Fi can increase the property’s desirability.
Location, Location, Location
Location influences rental rates as well as home values.
How convenient is the rental to schools and mass transit?
Is it within walking distance of shops, restaurants, parks or nightlife?
Is the area generally considered safe?
Are there many families in the neighborhood? What about older, retired couples, single millennials or young couples?
Consider How Much Rent the Market Will Bear
The right rent is the rent that keeps you competitive. That means knowing the area and who you want to attract.
Spend some time checking newspaper and online ads for other properties in the area.
Things to note:
- The asking price. You’ll want to stay competitive.
- How they’re equipped and furnished. You may want to discount for fewer features or build in a premium for extras.
- How long they stay on the market, and whether they offer incentives. The answers may point to an over- or under-supply of rentals in the area.
And check online resources to compare your asking price with other properties in the area.
Don’t Set and Forget
The right rent is also based on market demand.
That means you need to stay flexible in adjusting your asking price.
For example, are you seeing many prospective renters?
If not, you may be asking too much or too little. After all, asking too little can suggest something undesirable about the property.
And consider the desirability of the prospect.
For example, you might offer a discount to a tenant with a great credit score, or one willing to sign a longer lease.
And when you have questions or need advice, please contact us. We’re one of the top property management companies in the Charlotte area, and we’ll be happy to help.