Deciding how much rent to charge is one of your most important decisions as a landlord. It will affect the quality of your tenants, vacancy periods, and your profit. There are various factors you need to take into account when setting your rental cost, such as how much your property is worth and what kind of demand there is for it. Here are some tips you need.
The overall value of your property
Using the overall value of your property can give you a base rent value. The rent you can charge is typically about 0.8% to 1.1% of the home’s value. If your home is valued at $400,000, you could charge a rent amount between 3,200 and 4,400 a month. If your home is valued at much more than this, you may have to stick to the lower side of the range to attract good tenants. Charging too much could scare tenants away, but a home priced correctly for a local market will rent quickly.
Property managers have a good idea of what works and don’t work due to their experience in local markets. If you want to know the true value of your property in Tennessee, you can get in touch with a locally specialized Nashville, Memphis, Clarksville or Chattanooga property management service. The experts who understand the local market well can easily rent out a home for new clients. Some companies like Evernest provide a guarantee of service so they assure you of renting out within 21 days, or you receive the first two months of management free.
If you want to rent your property out in a specific area, it makes sense to look at what other landlords in the area are charging for a similar property to yours. One mistake people tend to make is not ensuring that the properties they compare are actually the same. For example, one less bedroom or a smaller lot size could make a big difference to tenants. When comparing properties, you need to take the following factors into account:
- Lot size
- Number of bedrooms
- Number of bathrooms
- Year the house was built
- Recent remodeling
Rentals of single-family homes usually command higher prices than multi-family homes. Tenants are also usually willing to pay more for new construction buildings.
When you analyze the local market, it will help you to find a balance that offers you profit but also offers tenants value. One factor you need to keep in mind is that some states limit what you can charge for rent and security deposits.
The demand for rentals
The demand for rentals can affect rental prices. In a poor economy, demand for rentals is usually high because people can’t afford to buy. Smaller, cheaper apartments usually rent very quickly. Larger-sized properties are usually in high demand before the start of a school year.
The less demand there is for a property like yours, the lower your rent price will have to be. When demand is high, surplus decreases, and you can charge more. Rent price growth in the U.S. is likely to remain strong due to rental demand. Homeownership costs are rising, and mortgage expenses are increasing. Many would-be homeowners remain in the rental market, and this exacerbates the already high demand. Prices could start tapering off in the second half of 2023 if home financing costs decline.
What you need to cover your expenses
A key factor that will affect your bottom line is how much you need to cover your expenses. Some expenses you have to account for include:
- Mortgage payments (unless you paid cash)
- Maintenance and repair costs
- HOA fees
- Insurance costs
- Cost of vacancies
- Property management costs
When you minus your expenses from your income, you should make a profit every month. If you just manage to hang on but don’t make any profit, you may have to increase your rent slightly. You need to consistently make a profit for your business to be successful.
Features that can boost your rent price
Certain amenities can significantly increase your rent price. If you have a swimming pool or on-site parking, this can be attractive to certain tenants. Adding a feature like a swimming pool does create more maintenance issues. If you offer well-rated appliances, such as a dishwasher, washer and dryer, it could help you get good tenants. Features like a garden view are more desirable than overlooking a parking lot.
When setting a rent price for your house, you need to consider the overall value of the property and local, comparable property prices. You must also look at current demand, your expenses and any bonus on-site amenities. Considering all these factors will help you to set a rent price that’s appealing to tenants and profitable for you. It can help you to pay off your mortgage while you’re waiting for the value of your home to increase.