5 Things to Think About When Setting Your Rental Price
When you own an investment property, there are a lot of different things you will need to do in order to make it profitable. This is especially true for all the rental property owners and landlords out there. One of the trickiest steps to take is setting a proper rental price. You want to find the right price point that allows you to be profitable, but also reasonable enough to attract and retain quality tenants.
Here are 5 factors to consider when setting your rent price, according to the real estate investment experts at PropertyLark:
1. Look at the Market Comparables
Obviously, the first thing you need to do is study the market. Look at comparable homes in the neighborhood where your rental is. Study the rental price trends for similar properties. If yours is the only rental, then research recent sales prices, current values and average mortgage payments for local homeowners. Understanding the price trends in that particular market is the first step in setting a proper monthly price for your rental property.
2. Consider the Amenities
Unless your rental is in a community with a lot of cookie-cutter homes that are all basically the same, you will never find an exact neighboring property to compare yours to. You do have to be creative when studying the comps. Then, you also have to evaluate the unique and appealing features of your home and the neighborhood around it. Extra bedrooms, home offices, pools, large yards, furnished basements, garages, scenic views, energy-efficient upgrades and storage space are all valuable features that renters will pay more for. Gated communities, clean neighborhoods, convenient shopping options, school districts and other external amenities should also be factored into your evaluation.
3. Understand Your Tenants
It really helps to know who the people are who are likely going to rent your house. A property near a university may attract students or faculty. A house in a good school district may attract young families. A smaller house in a quiet neighborhood may attract retirees. The types of people most likely to rent out your property will give you a good idea of where to set your rent. You can evaluate average incomes, housing needs and spending habits based on your ideal tenants. Just be realistic when understanding what types of tenants will be most interested in your rental.
4. Make it Profitable
Obviously, you want to make money from your rental property. If you set your rent too low, then you may end up losing money. Make sure that the rental price you set will at least cover your expenses (and ideally more) in the short term. Calculate the cap rate in order to understand the long-term value of the property, as you will hopefully be gaining equity over time. These are all important analytics to run before you even buy a property or before you decide to rent it out. However, if you are already past that point of no return, then you need to be really strategic in setting your rental price to make this investment worth your while.
5. Factor in Vacancy Rates
Last but certainly not least, you have to know how vacancies will affect your rental property investment. It’s foolish to assume that you your home will always be occupied or that you will get dependable long-term tenants from day one. Again, study the rental market around your house to determine average vacancy periods and factor those into your ownership expenses and profit projections. Each month your rental is empty means one less rent check in your hands, so vacancy can really add up quickly. Vacancy rates may ultimately affect your rental prices or how often you can and should raise your rent.
These are just some of many factors you need to consider when buying investment property and selling your rental price. The ultimate goal is to have tenants paying their rent on time, minimizing vacancy periods and earning a healthy profit over the time you own the property. Nobody ever said owning a rental property is easy, and setting the rent price is one of the most challenging parts of the process.
For the best property analytics and to find houses that will help you achieve your rental ownership goals, consider joining the PropertyLark home buyers’ network. We have all the resources to help you make the most of your real estate investments. Fill out the form on our buyer’s page to get started and see if you qualify for membership.