Deciding on your rent rate is a critical step in setting up a new rental property.
If you set your rate too high, fewer tenants will be interested in your property, and you may struggle with long vacancies or dwindling revenue. On the other hand, a rate that is too low might result in an influx of tenant applications but also low ROI and little extra income for keeping up with the property.
Your rate should be competitive with other local rental businesses. However, it should also be high enough for you to maintain your properties. The longer you’re in business as a landlord, the better instincts you’ll develop for determining an appropriate rent rate.
Here are some tips and tricks to follow when determining the best rent rate for your properties.
Use a Spreadsheet
Organization is your best strategy for choosing a competitive rent rate. A spreadsheet is a great way to organize your findings as your research similar properties in your area and determine how they decided on their rate.
Be sure to include columns for addresses, number of beds/baths, amenities, square footage, and any miscellaneous features that may influence rent rates (e.g., whether the unit has a street or courtyard view).
Next, list the price and any additional fees or security deposits you can find.
You can use this spreadsheet to ascertain how other landlords allocate price add-ons to various features. For example, if a unit with laundry facilities is priced $200 higher than one without them, you know approximately how much that amenity is worth in the rental marketplace.
Explore Listing Sites
Online listing sites are also an excellent resource for market research. Even if you don’t list your properties on some platforms, spend time browsing Zillow, Trulia, Apartments.com, and other listing sites.
As you read, add data to your spreadsheet. Remember to discount the listed rent amounts slightly, as most landlords rent their properties for less than the advertised rate.
Network with Local Landlords
Another strategy for determining a competitive rent rate is to join local real estate organizations in your area.
Not only are such organizations perfect for expanding your knowledge about property management, but they also allow you to build relationships with local property owners and keep up with the latest trends. By listening to others’ opinions about rent in the current economy, you will notice patterns and better pinpoint the right rate for your rentals.
Ask a Realtor
No one knows more about the market than a realtor. Although you don’t intend to sell your property, realtors can still be useful contacts.
Realtors have insider information and can access the Multiple Listing Service (MLS)—a database where real estate brokers can view information on properties for sale. This information can be difficult or impossible to find elsewhere.
What’s more, realtors are hyper aware of rental metrics, and many have direct experience as investors themselves.
Identify Rent Tiers
Once you’ve completed your spreadsheet, evaluate the data in aggregate. Look at the price spread and try to categorize properties into several groups by price per square footage.
These tiers are a helpful tool for considering your properties. Place yourself in a tier based on size and amenities and see where the price you had in mind falls in the group.
A higher price within a tier might deter prospective renters. Why would renters choose your property over another, cheaper one with the same features? If your price falls on the lower end of the tier, you might not be getting the most return on your investment.
Setting Your Rate
By following the above steps, you’ve hopefully landed on a competitive but reasonable rate for your rent.
As you continue to prepare your new property, don’t forget to use online rent collection on your property management software platform. Your future tenants will thank you for making it so easy to automate payments and view rent receipts.
Evaluating the Rental Marketplace
Determining a fair rate in today’s rental marketplace is not as easy as it seems. Between location, square footage, features, amenities, and floor plans, many factors are involved in deciding a unit’s rate. However, researching and analyzing the market before you advertise is a sure way to make sure your final decision is advantageous for you and your new tenants.
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