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? This is one of the very first questions landlords need to answer. Charge too much and you risk putting tenants off and increasing vacancy period, charge too little and you may struggle to operate a cash flow positive rental business and achieve your financial goals.
Calculating the ideal rent amount is a science, and involves in-depth market analysis of like-kind rentals in the area. The right rent amount will enable you to minimize the vacancy periods and attracts great tenants whilst simultaneously maximizing ROI.
It’s crucial to arrive at an exact number when working how much rent to charge. There are a few ways you can go about this — but whichever strategy you employ you should consider as many factors as possible to come to an informed decision. As you gain experience as a landlord, the process does become easier, but for now, you can 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 or 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 varies and depends on where your property is located and teh data available to Zillow. Since it’s more accurate in some areas than others, it's important to also do your own assessment.
A rental market analysis (RMA) will allow you to determine how your property stacks up to similar rentals in the area. This is like the comparative market analysis (CMA) you performed before purchasing a property. You should consider rating of the neighborhood, the floor plan and number of bedrooms of the property, the property’s age and recent renovations, the lot size, and the landscaping of the yard.
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Next, you should consider how your property stacks up against the comparison rentals you found in terms of amenities. You can charge extra for 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 may 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. You will need to find out if or 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 and this may allow you to set your rent at a premium compared to the less popular months.
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.
Setting your rent amount comes with numerous considerations, from the property size and location to the season your renting in and the amenities on offer.
You should also remember that raising or lowering the rent should you get it wrong can be restricted in rent control areas and should only ever be done between leases. Meaning once your tenant signs the lease you will need to stick with that rent amount until the lease end date.
It's important to ensure you take into considerations the continuing rising costs associated with owning and operating a rental, including increased mortgage interest rates, and the impact inflation has had on the cost of goods and services.
Finally, you need to make sure you have an online rent collection tool that will enable you to collect your rent on time and in full every single month. Landlord Studio is a property management and accounting tool designed for landlords. It offers a range of free tools from accounting and tax reporting to online rent collection.
With Landlord Studio tenants can set up autopay via the app or desktop portal and payments are delivered securely directly into your bank account. Rent payments collected via Landlord Studio are automatically logged in our income system. And the system gives you complete control over the payments, setting the rent amount and even blocking partial payments as needed. You can also set up automated rent reminder emails and automated late fees to help encourage on time rent.
Never experience late rent again. Create your free Landlord Studio account today.