How much should I charge for rent is one of the first questions landlords need to answer in order to operate a cash flow positive business.
How much should I charge for rent is one of the first questions landlords need to answer. You need to ensure your rentals are cash flow positive if you want to build a sustainable business and scale operations in the future. This involves minimizing the amount of time your property is vacant, and you need to charge a competitive rent amount that attracts great tenants whilst maximizing revenue.
Related: The Best Way To Collect Rent Payments From Your Tenants
It’s crucial to arrive at an exact number for the ideal rent for your property. There’s no simple way to do this — you need to consider several factors and come to an informed decision. As you gain experience as a landlord, the process does become easier, but for now, you should rely on the following steps.
To gain a baseline of how much you should charge for rent, start by calculating 1 percent of your property value. The rent you charge should be around this amount. In fact, it’s unlikely that you’ll want to charge less than 0.8 percent of your property value nor more than 1.1 percent.
The Zillow rent estimate (or Zestimate®) provides you with a figure for suitable rent according to your address. The tool takes into account square footage, number of bedrooms, number of bathrooms, rent prices of properties in your area, the last sale price, and information about the property that you provide. However, the usefulness of this tool does depend on where your property is located. Since it’s more accurate in some areas than others, it is important to also do your own assessment.
Use a rental market analysis (RMA) to determine how your property stacks up to similar rentals. This is like the comparative market analysis (CMA) you perform before purchasing a property. You should consider ratings for the neighborhood, the floor plan of the property, the property’s age, the lot size, and the landscaping of yards.
Next, consider in which ways your property is more or less desirable than other rentals in terms of amenities. You can charge extra for all the features renters are looking for, but you’ll need to discount for any amenities that competitors have and you lack. Some key factors that influence a renter’s decision to live in a property include:
If you have a luxury property, tenants will also want features like:
When it comes to setting or raising rent you may be restricted as to how much you can charge by rent control laws. These set a limit to the starting rent amount and how much you can increase rent each year. Find out what regulations apply to you on both a city and state level.
Several factors impact demand for rental properties, including the local and national economic situation, the desirability of the neighborhood, and the number of units available. Bear in mind that demand may change according to the season. People prefer to move in the spring or summer, meaning there is a greater demand for rental units at these times of the year.
It’s crucial when determining how much to charge for rent to be able to cover your operating costs and make a profit on your property. Calculate how much you need to pay in mortgage and add all the extra expenses you may or will face, including homeowner’s association fees, maintenance, taxes, employee payroll, and vacancy costs for tenant turnover. Ideally, you want at least 5 percent of your gross monthly income to be profit.
Finally, the number of viewings and applications you receive are great indicators of whether you are asking for the right amount. If you are receiving low interest from great tenants whereas other properties in the area are on the market for only a short time, you should likely consider reducing how much you’re asking for.
Accounting is often one of the most difficult aspects of being a landlord — but it doesn’t need to be. Landlord Studio manages all your accounting for you, including taxes, expense tracking, and rent payments. Using the reports the tool generates, you’ll gain insights into the financial situation for each of your properties and be able to decide more easily how much rent to charge.