When\nyou invest in real estate, part of how you\u2019ll recoup your investment and boost\nyour profits lies in the tenants that live on your rental property. You want to\ncharge them a reasonable rate that fits with the market value of the area or\nelse they will look for another place to live.<\/p>\n\n\n\n
Charging\ntoo little might mean you don\u2019t make back what you need to on the market value.\nBut charging too much means you\u2019ll encounter vacancies which will wind up costing\nyou money.<\/p>\n\n\n\n
So,\nhow much should you charge for a rental property?<\/p>\n\n\n\n
It\nall depends on the market value of your home and should be a percentage of that\nvalue. Depending on the real estate market the property is in, the location,\nand the amenities of this property, landlords typically will charge between 0.7%\nand 1.1% of the property\u2019s value. <\/p>\n\n\n\n
Yes,\nI know that\u2019s a bit vague, but we\u2019ll get into more detail further down so keep\nreading. You\u2019ll find out how to estimate rent and what factors can allow for the\nrent to be higher. <\/p>\n\n\n\n
When\nyou\u2019re new to real estate investment, figuring out how much to charge your\ntenants every month is a very crucial step. You can\u2019t just pick a random number\nthat sounds good to you. For one, it could be too low and then you\u2019re not\ngenerating enough passive income as you should be for your investment. For\nanother, it could be too high and be unreasonable to the point where your\nproperty stays vacant, not earning you a dime. Read on to avoid either of those\nrookie mistakes when estimating rent!<\/p>\n\n\n\n
The\nprices of rentals are going to vary from area to area. In one part of the\ncountry, the rents could be far less while in other areas. Take London for\nexample. In July of 2018, the average rent in Greater London was 1615 British\npounds ($1,985 USD). In the North East of England though, the average was just\n525 British pounds ($645 USD) during the same time period. The difference is\nhuge!<\/p>\n\n\n\n
So\nyou have to go with the rents that are in your area for in this example, if you\nwere in the North East of England and tried to charge as much as the average\nrent in Greater London, it would be too extreme. <\/p>\n\n\n\n
This\nis why I recommend whether you\u2019re in England, the US, or anywhere really, you\nshould learn about the average rent costs in your particular area. To do\notherwise would be comparing apples to oranges, and you\u2019ve got to keep apples\nto apples to be successful.<\/p>\n\n\n\n
OpenRent<\/a> has a rent calculator that allows for comparing rent instantly online for UK properties. In the US, there\u2019s RentOMeter<\/a> and plenty of others too. These can be very handy when trying to calculate the average rent for where your property is located. <\/p>\n\n\n\n Typically,\nyou\u2019ll have to input a few things to help the system out. After all, if your\nproperty has 3 bedrooms and you\u2019re comparing it to properties with just 1\nbedroom, it doesn\u2019t help very much.<\/p>\n\n\n\n Details\nthat you\u2019ll likely need for your property include:<\/p>\n\n\n\n You\u2019ll\nget an estimated rental value in an estimated range which should give you a jumping-off\npoint. Though there is much more to this story so keep on reading. I\u2019d hate for\nyou to miss out on how to fully maximize the rent potential for your investment\nproperty!<\/p>\n\n\n\n Something\nelse you can (and should!) do to learn more about the rental averages for your\narea is to inquire with a local real estate agent. Even a property manager can\ngive you a quotation.<\/p>\n\n\n\n With\nreal estate agents, most of them will happily provide a quote without obligation.\nThey generally have the best knowledge in their area for the rental prices.\nIt\u2019s their job. <\/p>\n\n\n\n It really might help to go to an event and meet a few real estate agents, or ask friends for recommendations. Then again, if you\u2019ve got your real estate license yourself (you can read about how that benefits you here)<\/a>, you might already have the inside scoop. Even if you do though, it never hurts to get a few opinions to compare.<\/p>\n\n\n\n If\na real estate agent is really worth their salt, they\u2019ll stand firm in the\nmiddle. What I mean by this is that they won\u2019t tell you to lower prices for the\nsake of tenants (unless you have some outlandishly high idea for the rent that\nis) nor will they try to give you pretenses about charging higher rents to\nprofit like Scrooge. Ideally, before you speak with other real estate agents,\nyou should make sure you\u2019ve taken the first step and looked into the average\nrental prices in your area first. <\/p>\n\n\n\n What\nare the questions you should ask your real estate agent? You can\u2019t just go in\nthere with your average rental prices for the location in question. You need to\nbe ready to gather more information. What you should be asking is:<\/p>\n\n\n\n Getting\nthis information can bring you that much closer to renting out your property\nand bringing in passive income that finances your future. <\/p>\n\n\n\n As you probably knew when you invested in your property, being a rental property owner can create plenty of passive income. When making that investment, hopefully, you used the 1% rule to help you narrow down your possibilities (and if you have yet to make your investment, please go here and read everything you need to know about the 1% rule for real estate<\/a> for your best advantage!). <\/p>\n\n\n\n You\ncan also use that 1% rule to help you figure out how much rent to charge.\nBasically, if the rent you charge amounts to less than 1% of the total cost of\nthat property, it will take too long for you to make money off of it. You have\nto think about all those little (and big!) additional costs that are going to\nstack up over the years plus you have to pay back the initial cost. Charging\nanything less than 1% of that property\u2019s worth could take years and years to\nreally pay off and I don\u2019t recommend it.<\/p>\n\n\n\n As\nusual, I\u2019d love to illustrate that point in numbers.<\/p>\n\n\n\n Say\nyour property costs $205,000 and the rent is $2,000. There\u2019s always a bit of an\nerror that changes with the tides. Rent is merely an approximation. Something\nthat goes for $2,000 is generally in a broader range of something like $1,900\nto $2,100. Factors that can affect it to be at the upper or lower portion of\nthat range can be the lease term, the season, or a number of other things.<\/p>\n\n\n\n Rent\nis always a range. Even at $2,000 a month, the GRM (Gross Rent Multiplier) is\n102.5 rather than 100 but it won\u2019t demolish your returns. However, if that same\nproperty were to rent for $1,400, that\u2019s a bad deal and not worthy of your\ntime. <\/p>\n\n\n\n Renters themselves can look at this inversely. If they look at rentals to see how much the property costs on the market through the sites available (like Zillow<\/a> for example), they can find something that might work in their favor. For that $1,400 would be much better than $2,000 to someone who needs a place to live. <\/p>\n\n\n\n So\nnow that we understand all this, you still need to conduct due diligence to\ndetermine a rental price. To do that, you should try a few more things.\nRemember, this investment should make you money and that money will come easy\nif you do the right things. But in the beginning, you need to do your homework\nto be successful. <\/p>\n\n\n\n Online forums can help you connect with nearby landlords doing the same thing. It pays to be connected with others like you. BiggerPockets<\/a> is one forum that you might find useful. <\/p>\n\n\n\n You\u2019ll\nget a good idea of the comps in your area by checking on Zillow, Trulia,\nCraigslist and the other sites. <\/p>\n\n\n\n Your\nwording is everything in those rental ads you see online. Pay attention to\nthose and make note of ones that are effective. While you\u2019ll need to be\noriginal, you can draw inspiration from those to attract the kind of quality\napplicants you want to rent your property to.<\/p>\n\n\n\n Once\nyou list your property, if no one is applying to rent it or there seems to be\nno interest in it at all, you may want to reevaluate how much you\u2019re charging\nfor rent. <\/p>\n\n\n\n If\nno one is calling up to see your property, something needs to change. <\/p>\n\n\n\n It\nhelps to be objective here. This is why asking a real estate agent could be an\neye-opening experience, one that can help you get a tenant into your property\nso you can start earning on your investment. <\/p>\n\n\n\n Another\narea to explore is a rental market analysis. This could help whether you\u2019ve got\nmore than one property to rent out, one that has a high value, or you\u2019re\nlooking down the road for your future. It takes a lot of time and skill but it\ncan help you learn more about the market situation, especially when it comes to\nunderstanding the rental market in your area. <\/p>\n\n\n\n Be\nready to get in full detail about the following aspects for your property:<\/p>\n\n\n\n And\nas the last point is rather important for making your rental property stand\nout, I\u2019m going to detail that a bit further. It could be what leads you to a\nlarger passive income so keep reading!<\/p>\n\n\n\n Research\nis always important for real estate investors to make sound and profitable\ndecisions. However, you have to think like a renter in terms of what is\ndesirable. What do people want when they look for a place to live? Amenities\ntruly carry a lot of weight with them. <\/p>\n\n\n\n In\nfact, in your research, you may come across a comparable property that\u2019s around\nthe same size as yours but it is missing a key feature or amenity. One big\nmotivator is a washer and dryer in the unit. If your property offers this, you\ncan justifiably ask for a higher rent. Most would-be tenants would happily pay\nit to as no one wants to shuttle baskets of dirty laundry to a communal laundry\nroom or an off-site coin laundry. <\/p>\n\n\n\n The\ntop amenities tenants look for when renting a property are things you should be\nlooking at yourself, ideally before you invest. Though you can make adjustments\nafter purchasing to add value and hence, make proper reasoning for higher\nrents.<\/p>\n\n\n\n What\ndo tenants want? If you\u2019ve ever rented a property yourself, some of this may\nseem quite familiar. <\/p>\n\n\n\n Having\nan accessible, safe and secure place to park is a huge draw, especially in\nmarkets where parking tends to be scarce. Think about what you\u2019d want if you\nyourself were living in this property. If you have assigned parking spaces,\nmany tenants love this feature, so they know they always have a place to park.\nBut if that\u2019s the case, be sure there are enough guest parking spaces. No one\nlikes having added stress of wondering where their loved ones will park when\nthey come over for dinner or the holidays.<\/p>\n\n\n\n Additionally,\nif you have a large garage, that\u2019s certainly worth highlighting. And even if\nyou have a property that has lots of street parking always available around it,\nthis is a great point to make for renters.<\/p>\n\n\n\n Another\nthing renters look for is safety. <\/p>\n\n\n\n If\nyour property provides any of these things, it\u2019s important to let renters know.\nBe honest too\u2026 some places mention they have security systems included but when\nprospective renters show up, they find out they need to pay an additional fee\nto activate it. <\/p>\n\n\n\n We\nall know this is one of the first considerations when renting or buying.\nLocation is huge in real estate. It matters what you\u2019re close to. For your\nrenters, they may be looking at a place with easy access to the highway to\nconnect to work but with great walkability in the neighborhood. The ability to\nwalk to the local coffee shop or bar is a huge perk. So is the proximity to\ngood schools, supermarkets, retail shopping, restaurants, or public transit. <\/p>\n\n\n\n Think\nabout what people are looking for in a location and you\u2019ll know what to\nhighlight. For example, if your property is within easy walking distance to the\nbest school in the district, it is definitely something you want to highlight\nand very likely, won\u2019t remain vacant for long. People all want a high quality\nof life and knowing when they look at a rental listing that the things they\ndesire are all close by is a huge plus!<\/p>\n\n\n\n Amenities\nare all very important for attracting tenants. While some of them may be inside\nthe property itself like new appliances, others might be outside on the\npremises. Some may be shared while others may be for each individual tenant.\nPatios and balconies are a great example of amenities that a property may\nprovide each tenant. A heated outdoor pool is definitely attractive for the\nentire community, though in certain climates, if you have an activity clubhouse\nwith an indoor pool and other recreational opportunities, you will have\njustifiable cause for a higher rent. <\/p>\n\n\n\n Other\nthings that attract tenants these days are dog parks as well as separate\nplaygrounds for children. In upscale areas, having a tennis court and fitness\ncenter are huge perks that will certainly lure in the right rental prospects. <\/p>\n\n\n\n So,\nif you have any of these amenities, this can only mean great things for you\nwhen you\u2019re trying to get tenants to lease on your rental property. But even if\nyou have every state-of-the-art feature, there\u2019s a bit more to it than just\nslapping on a high rental fee. Keep reading to find out what you need to know!<\/p>\n\n\n\n In\nsome of the most coveted markets in the country, there are rent control laws.\nWithout them, many people wouldn\u2019t be able to afford rent. We\u2019re already seeing\na lot of trouble in the pricier cities out there like San Francisco for\nexample.<\/p>\n\n\n\n Before\nyou get into a market with a rental property, you should find out if the city\nyou\u2019re in has rent control laws. These limit how much rent you can charge and\nhow much you are allowed to increase it each year. These laws are set at the\nlocal level, so the averages prices are going to vary by each city. New York,\nCalifornia, New Jersey, Maryland, and Washington, DC are all places that have\nrent-controlled properties. Make sure that you check if the city your property\nis in has rental control laws and familiarize yourself with those restrictions.\nIdeally, you\u2019ll do this before you even put down the investment into a property\nso you know your limitations. <\/p>\n\n\n\n Once\nyou do all your research and figure out what you might want to charge for rent,\nyou should also consider why it\u2019s important to charge an appropriate fee. You\u2019ll\nwant to attract the right kind of tenants for your property so you can get paid\non time. Payment problems are the top concern among landlords and\nunderstandably so. The cost of an eviction because the tenant didn\u2019t pay can go\nas high as $10,000 in legal fees and court costs, not to mention the time and\nexpense it takes to fill a vacancy that you weren\u2019t expecting to have. <\/p>\n\n\n\n If\nyour rates are too low for the area you\u2019re in and the kind of property you\u2019re\nrenting out, you will very likely attract a less desirable candidate, one who\nmight not make their payments on time. Conversely, if they\u2019re too high, you\nwon\u2019t be able to get any tenants in there and then forfeit a monthly passive\nincome. So, you\u2019ve got to strike a proper balance \u2013 a rent that is not too low\nor too high. <\/p>\n\n\n\n To do this, you should look at the average income for those that live near your property. That rental rate you make should target those with similar incomes. You can use TransUnion\u2019s Income Insights<\/a> to help screen tenants. It analyzes the prospective tenant\u2019s income by comparing self-reported income with their credit behavior. <\/p>\n\n\n\n Applications\nhelp weed people out though you should confirm these things because anyone can\nmake up information. It\u2019s up to you to protect your investment, to know for\nsure that the renter in question really is employed by the company they say\nthey work at and that they have no major criminal history.<\/p>\n\n\n\n If\nyou can confirm all of these things, then you\u2019ve found yourself a solid renter\nfor your property.<\/p>\n\n\n\n When\nyou charge the appropriate rent for your property, you can cover the expenses\nthat you incur on it. If you\u2019re not able to handle these expenses, then you\u2019re\nnot charging the right price for rent. <\/p>\n\n\n\n While\neach property is different, there are many things that are common features.\nWe\u2019ll keep our example simple with a condo rental, however, be aware that if\nyou\u2019re renting out a home, you need to budget for a new roof at some point and\nincorporate outside maintenance like landscaping (which is year-round in places\nlike Florida) or snow removal (in places up north). <\/p>\n\n\n\n In\nthis example, the condo fee will cover water and sewer and the tenant must\ncover the electricity themselves. <\/p>\n\n\n\n My\nhandy table below gives it to you in terms of numbers:<\/p>\n\n\n\n With\nthis example, there\u2019s a $443 positive cash flow every month. Most tenants will\nrenew the lease unless they are offered a job in another location or something\nelse life-changing occurs. So as long as you keep the rent fair on both ends\nand are a good landlord, you won\u2019t wind up with a vacancy cost and you get the\nentire yearly $2,280 from that, added to your bottom line. <\/p>\n\n\n\n Plus,\nyou may get lucky and have nothing break. If you don\u2019t have to dig into your\nrepair fund that you budgeted, it too will flow down to the bottom line. <\/p>\n\n\n\n When\nyou set the proper rental price, you maximize your profit potential. By doing\nit right, you can put as much as 6% of that rent right back into your pocket,\nleading to a smart passive income. <\/p>\n\n\n\n Of\ncourse, there is a bit more to it than that. You\u2019ve got to track the rental\nvalue of your property in the local market. And you\u2019ve got to collect that\nrent. Do you do it yourself or hire out? To make the best decision, keep\nreading!<\/p>\n\n\n\n As\nI said before, you need to do your research on the local market. There are some\nmarkets that are very challenging, like San Francisco for example, because rent\nis always rising rapidly. It\u2019s a pretty challenging task but it can be done. <\/p>\n\n\n\n Take\na deep breath and look at the local market reports online (use Zillow) and\nyou\u2019ll find the median rent in your area as well as places nearby. By doing\nthis, you\u2019ll see if the rents are rising or falling. You\u2019ll see by how much and\nwhether you can expect them to increase or decrease.<\/p>\n\n\n\n That\nrental price you settle on isn\u2019t some set-in-stone amount. It\u2019s based on a\ndynamic value that fluctuates with the local market conditions as well as your\ndirect competition. It\u2019s your choice what to charge within the range that you\nfind. Depending on how the market is, when it\u2019s time to renew the lease, you\nmay need to increase or decrease the rent. <\/p>\n\n\n\n Be\nprepared in an increase though that renters might not be keen on shelling out\nmore money, especially if there is no value-added and the property isn\u2019t as\nnice as neighboring rentals. You can avoid problems by looking at Zillow\u2019s rent\nindex to anticipate annual growth percentages in your area. <\/p>\n\n\n\n Again, I like numbers, so consider this example. In a busy hub city like Atlanta, the average monthly rent for May of 2019 was $1,462 which was 5% more ($69) from the year before. Researching what it will be for the following years is your key to finding a comfortable rent for tenants and a comfortable profit for you. <\/p>\n\n\n\n–\nAsk a local real estate agent or a property manager<\/strong><\/h3>\n\n\n\n
Use\nthe 1% Rule to get a Ballpark Estimate of the Right Market Rent <\/strong><\/h2>\n\n\n\n
How\nto determine a good rent estimate by performing your own due diligence<\/strong><\/h2>\n\n\n\n
–\nUse your network<\/strong><\/h3>\n\n\n\n
–\nCheck out rental property sites<\/strong><\/h3>\n\n\n\n
–\nGet rental ad ideas<\/strong><\/h3>\n\n\n\n
–\nSee how much interest your property creates<\/strong><\/h3>\n\n\n\n
How\nto properly conduct a rental market analysis for your property<\/strong><\/h2>\n\n\n\n
Consider\nyour property\u2019s amenities <\/strong><\/h2>\n\n\n\n
–\nParking<\/strong><\/h3>\n\n\n\n
–\nSecurity<\/strong><\/h3>\n\n\n\n
–\nLocation<\/strong><\/h3>\n\n\n\n
–\nOutdoor entertainment areas<\/strong><\/h3>\n\n\n\n
Is\nthere a rent control law in your city?<\/strong><\/h2>\n\n\n\n
Why\nis it important to charge the appropriate amount of rent?<\/strong><\/h2>\n\n\n\n
\nDoes their income meet or exceed three times the monthly rent?<\/li>– It will help you cover your mortgage payments and other carrying costs<\/strong><\/h3>\n\n\n\n
\n \n <\/td> \n Annual\n Numbers\n <\/td> \n Monthly\n Numbers\n <\/td><\/tr> Income Before Expenses <\/td> \n $22,800\n <\/td> \n $1,900\n <\/td><\/tr> Now to the Expenses: <\/td> \n \n <\/td> \n \n <\/td><\/tr> Insurance Premium <\/td> \n $360\n <\/td> \n $30\n <\/td><\/tr> Mortgage Payments (Principal and Interest) <\/td> \n $8,556\n <\/td> \n $713\n <\/td><\/tr> Property Taxes <\/td> \n $2,088\n <\/td> \n $174\n <\/td><\/tr> Condo Fee <\/td> \n $3,276\n <\/td> \n $273\n <\/td><\/tr> License Renewal Fee <\/td> \n $60\n <\/td> \n $5\n <\/td><\/tr> Upkeep or Maintenance <\/td> \n $180\n <\/td> \n $15\n <\/td><\/tr> Vacancy (Even if there is none) <\/td> \n $2,280\n <\/td> \n $190\n <\/td><\/tr> The \u201ceverything that can break will break\u201d fund <\/td> \n $684\n <\/td> \n $57\n <\/td><\/tr> Total Expenses <\/td> \n $17,484\n <\/td> \n $1,457\n <\/td><\/tr> Cash Flow <\/td> \n $5,316\n <\/td> \n $443\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n – It helps you maximize your rental income<\/strong><\/h3>\n\n\n\n
How\nto track your house\u2019s rental value in the local market<\/strong><\/h2>\n\n\n\n
Check local market reports before changing house rental rates<\/strong><\/h2>\n\n\n\n
The\nbest means to collect rent from your tenants<\/strong><\/h2>\n\n\n\n