Investing in real estate is a great way to grow your wealth, but you have to make many decisions that can impact your finances. For example, not only do you have to buy property to rent, but you also have to deal with maintenance costs, contracts and leases, and figuring out how much to charge for rent.
Pricing your rental correctly the first time can help you save money on marketing and prevent your property from staying vacant for too long. However, many landlords often price their rentals incorrectly, which can deter would-be renters from even applying. There are many things to consider before you set the price of rent. Here are tips for how to price your rental to help you reach more prospective tenants and fill your vacancy.
Look at Comparable Properties
Whether you’re a landlord for a house or an apartment complex, you need to know how much similar properties in the area charge for rent to help you stay competitive. Focus only on rentals similar to yours. For example, there’s no reason for your rent to be equal to the rent of a house that offers more square footage. Instead, look for properties that are as similar as possible and in the same neighborhood. Features to consider include the number of beds and baths, types of homes, new construction, and rental upgrades.
You can find comparables online or work with a realtor who can help you understand the different price points in the area if you’re unfamiliar with a certain city or neighborhood. Of course, you can also use sites that help people find rental properties like Zillow.
Renters are willing to pay more for better amenities. Therefore, you shouldn’t price all of your units the same even if they have the same number of bedrooms unless they are exactly the same. Ultimately, the rent price should depend on the desirability of the unit. For example, someone in an apartment complex will be willing to pay more for a unit on the end because there are fewer neighbors and more windows. Therefore, even though their unit is exactly the same as the one in the middle of the building, they have different features they’re willing to pay for.
You can typically charge more for a property based on its views. For example, properties with good views instead of a parking lot are typically worth more in the eyes of renters. Additionally, updated appliances, more space, and higher floors are more desirable, allowing you to charge more.
You invested in real estate to make a profit and grow your wealth. So while you must remain competitive, you should also make a return on your investment. Of course, you can’t expect to become cashflow positive quickly in real estate since it’s a long-term investment strategy. Of course, first, you’ll need to pay off the mortgage and deal with monthly bills associated with the business.
However, eventually, if you price your units correctly, you can start making a profit. Remember that some landlords don’t start making a profit until they’ve had their properties for years or decide to sell them. Your goal should be to price the unit to at least cover your expenses. If you’re losing money on the property, you may have over-invested.
While the prices on comparable properties will help you price your property correctly, you should also look at the market demand. If there’s more demand, you can increase your rent, but if there’s less demand, a higher price could leave you with a vacancy for longer. Ultimately, when the economy is bad, demand for rentals might increase because people are leaving their homes. However, a bad economy can also mean demand for cheaper apartments because people are downsizing.
When there’s greater demand for a property or unit, you can charge higher for rent. However, you should reevaluate the demand every few months because it can shift dramatically throughout the year, especially depending on the economy.
Allowing pets can help you stand out from the competition and help you get more tenants quickly because not all apartments or rentals allow pets. You can charge a non-refundable pet deposit fee and monthly pet rent when you allow pets. Many apartments don’t allow pets because they can damage carpets and walls.
However, by charging a non-refundable pet deposit, you’ll ensure your unit is covered in case a pet destroyed something. Additionally, people are willing to pay more for an apartment that allows pets because they want to bring their dogs and cats to a new home.
The cost of rent increases every year, but prices fluctuate frequently. If you’re going to raise the rent, you should determine how much so that you won’t price yourself out of the market. Renters already living in rentals expect their rent to increase every time they sign a new year-long lease.
However, you can keep your current tenants happy by reducing the amount you raise the rent. For example, a new tenant that just signed a lease should pay more than someone who has lived in the apartment for years because it’s easier and more affordable to keep existing tenants than find new ones.
We’ve already touched on amenities like beautiful views, but if your rental is in a great location, like Tampa, Florida, with grocery stores and entertainment nearby, your property will likely be worth more than one that requires someone to travel a greater distance. So even though you might not have the most scenic views and your renters may have to look at parking lots or streets, if you have a good location that can help tenants easily get where they need to go, you can typically charge more.
The best thing you can do as a landlord is not price yourself out of the market. Even if your rental offers higher-end amenities and features, you might still be unable to charge as much as you want based on other factors like the economy and location. If you’re unsure how to price your rental, consider working with a local real estate agent who can help you understand all the different factors to consider while helping you compare your rental to the competition.
Julia Olivas graduated from San Francisco State University with her B.A. in Communication Studies. She is a freelance writer where she loves sharing her passion for digital marketing and content creation. Outside of writing, she loves cooking, reading, making art, and her pup Ruby.