How to Determine the Price of Rent
When you purchase your first rental property and you are looking to fill the vacancy with tenants, you will first need to determine the price of rent. Choosing a proper rent price will be important for running a profitable rental business as well as in attracting renters.
Rentals that are priced too high may suffer from long vacancies and rentals that are underpriced might not pay back the investment you made at the rate you need.
There are a few different methods to utilize when determining the price of rent for your property. Check out how these processes work and
Method #1: Market Rate Formula
One way you can determine your rental prices is by taking the value of your home and charging between 0.8 percent and 1.1 percent of the home’s value. While this is a well-known method for rent pricing, it is not always accurate to the market your home is located in and shouldn’t be used alone.
Calculating this number in conjunction with the next method can help you to better determine the price of rent.
Method #2: Comparing Rent Prices
Another method for setting your rent price is to take the time to research rent prices in your area. You can look through Craigslist, Zillow, and other listing sites to see what other properties are priced for in the area.
When you are comparing rent prices, take note of a few different factors.
- The number of bedrooms
- The number of bathrooms
- The size of the property and outdoor living space
- Pet policies
- Included amenities
- Age and condition of the property
As you take note of prices of other properties in the area, search for properties that are as similar as possible to yours. While it may be hard to find a property with the exact specifications of yours, you can at least find enough properties with similarities to yours to make an educated pricing decision.
Method #3: Professional Rent Comparison Report
Along with your own research into properties in the area, you can also purchase a professional rent comparison report. This can help you learn more about the area than just your own research.
A rent comparison report is also an excellent time-saving method for pricing your property. The report can pull a large amount of data for your area quickly.
The best rule of thumb is to combine all three methods to figure out the most accurate pricing possible. It is also important to understand the seasonality of renting and the demand of your area when you put your property on the market. If you are in a high demand area, your pricing might be able to land a little higher. If, however, you are renting your property during the slow season, it may require a touch lower price.