The science and art of rent setting
Smart landlords keep a close and constant eye on their local rental market. Optimizing your revenue stream so it’s sustainable isn’t the same as always maximizing it for short-term gain. These tips for landlords will help you establish a rent in that sweet zone for long-term profitability.
Read on to explore your rent-setting options and discover whether you’re a real estate scientist or artist —or maybe a property polymath.
Smart landlords as scientists
One definition of a scientist is someone who gains knowledge through experimentation and observation. So, when it comes to setting rents for her tenants, just about every landlord is a scientist.
You’ll be gaining an intimate knowledge of your local rental market based on observation and you’ll doubtless end up doing some experimenting.
Normally, what you charge for rent depends on the property’s market value. In typical US markets without rent control, landlords get between .8 percent and 1.1 percent of the home’s value for their monthly rent. A home valued at $100,000 would commonly fetch between $800 and $1,100 per month. You’ll need to do a little work to discover which end of that range is in your strike zone.
The more successful you become, the more time you’re likely to spend observing your marketplace. Only by knowing the going rate for rental units can you be sure you pitch your price correctly.
Charge too much, and you risk not attracting tenants. That means longer periods when your units are empty and costing you money.
But pitch your rents too low and you’re giving money away.
Gaining market intelligence isn’t hard but it does take time. The most accurate source of market data is an appraisal with a rental schedule. Most mortgage lenders require this when you purchase a rental property for good reason. The appraiser does all the hard work for you — valuing the property, providing an estimated rent, and comparing its desirability to other nearby competitors.
Or you can check online home valuation tools, and monitor ads placed by your competitors. You’ll benefit from networking with other local landlords so you can pick each other brains. You’ll also want to visit plenty of open houses.
All this is to allow you to compare a unit you own with ones locally that others own. When you know a one-bedroom apartment has just been rented for $1,200 a month, that helps you set the rent you want for your one-bedroom apartment.
You may think that a unit’s square footage and the number of rooms it has are the two critical factors when comparing homes. You’d be right as they’re often the most critical but they’re far from the whole story
Not just number of rooms
There is a whole slew of other factors that can affect rental values, including:
The neighborhood — Rundown, gentrified or up-and-coming
The location — Whether the unit is close to major employers and local amenities such as parks, schools, trendy restaurants and so on
The view — People will pay more to look out over an attractive landscape or cityscape
The unit’s fixtures and fittings — Renters value modern or new appliances, HVAC, and good kitchens and bathrooms. But you need to be sure your tenants will look after them
Whether or not units are furnished and to what standard — Yours and the ones you’re using as comparisons
Storage and other features — Havings lots of closets is great, as are bay windows and balconies or roof terraces