It’s no secret that real estate markets across the entire country have dramatically increased in value over the past two years. This means that property owners who are looking to rent out their buildings to tenants can make more money than ever before.
However, you’ll need to know how much to charge for rent in order to make the most of this opportunity. Let’s explore some of the key factors that you should consider while moving forward.
Look at Properties in the Nearby Area
For those who need guidance on setting rental rates, checking out similar properties in the nearby area is one of the best ways to start.
More often than not, other property owners will have already conducted the necessary amount of research to charge the appropriate amount in rent. This will make it much easier for you to appeal to someone who is renting a room in your city. It’s also worth considering that property in your area may be worth a higher or lower amount compared to the greater surrounding market.
Without the proper research, you could end up charging far more or far less than you should.
Consider the Quality of the Property
You can’t expect to charge a large amount in rent if your property has numerous issues that you have yet to resolve.
For example, let’s assume that you are looking to rent out a house that is located near a busy downtown district but there are issues with the home’s HVAC system and plumbing. It wouldn’t be practical to show the house to potential tenants and then list your rent at the upper end of the local market’s range.
This also applies to any other type of issue the homemade has, such as structural damage. Instead, it’s in your best interest to make the necessary repairs before you list the home as being available for rent.
This will go a long way in terms of helping you get the most passive income out of this endeavor.
Take Seasonality Into Account
Certain regions of the country will have varying rental rates depending on the season.
For instance, property owners in Florida typically charge more in rent during the colder months of the year. This is directly due to Florida’s tropical climate, making it a state where many Northerners look to escape to during winter. The inverse is true for property up north.
During the warmer months of the year, people from the South might choose to relocate to places like New Hampshire, Michigan, Virginia, etc., making rent in these regions more expensive during summer.
When taking seasonality into account, you should also understand that you might need to adjust the rates as the year goes on. Although you may have been able to charge a premium for your Florida beach home during winter, this rate might not be competitive during summer. Keeping this information in mind can help minimize vacancies.
You May Need to Adjust the 1% Rule
For those who are unaware, there is a saying within the real estate industry that you should charge 1% of the value of your home in rent each month. So, if a home is worth $400,000, you should charge your tenants $4000 per month. However, this might not always be the ideal number depending on other factors.
As previously mentioned, property damage could deter tenants from paying the maximum accepted rental price in your region. You may also discover that your local market is growing in popularity. As a result, tenants may be willing to pay significantly more than 1% of your home’s total value in rental payments each month.
So, don’t accept the 1% rule is something that cannot be modified.
Amenities Also Have an Impact
On paper, two homes may sound fairly identical based on data like square footage, the number of bedrooms/bathrooms, etc.
However, amenities can go a long way when it comes to affecting what you charge for rent. Some of the key attributes to consider include parking spaces, security, local attractions, and walkability. To elaborate on this last point, people often prioritize homes that are located within walking distance of parks, pools, restaurants, and public transportation.
In terms of structural amenities, a home with a built-in theater will likely be worth much more to tenants than a home that simply has a spare bedroom for guests.
Don't Be Afraid to Go With the Flow of the Market
Some landlords are hesitant to increase the rent as time goes on. Although rent is adjusted each year to help account for inflation, you might need to raise your rates higher than normal.
If your local market is continuing to grow in popularity or development, what would normally be a 2% increase could end up being an 8% increase. When increasing rent, though, it’s essential that you provide your tenants with plenty of notice.
You should also convey this occurrence to them as respectfully as possible.
Knowing How Much to Charge For Rent Can Seem Complicated at First
The good news is that it is not nearly as complex as most people believe. When you know how much to charge for rent, you can make sure that you establish a fair rate while still maximizing your income.
This can mean the difference between whether or not you reach your financial goals. Want to learn more about what we have to offer? Contact RentSafe today to discuss your tenant screening process needs.