Renting out investment properties is a great way for you to generate a passive income while maintaining ownership and control over your investment. But, it can be challenging to figure out how much you should charge in rent. You want to make enough on your property to cover the expenses that you have as an owner and make some more on top of that to create positive cash flow.
Table of Contents - The Ins and Outs of Setting the Right Rent: Too High vs. Too Low
Finding the magic number isn’t easy. By taking some factors into account, you can find a rent figure that is reasonable for your tenants and brings in profit for you as a landlord.
Factors to consider when setting rent
There are several pieces of information you have to consider before you can determine the right rental rate on your property. Understanding these factors will help you set a rent that tenants consider fair, that brings in consistent profit for you:
The most basic thing to consider when you’re setting rent at your property is what the specifications of your property are. The number of bedrooms and bathrooms, the age of the unit, the square footage and the interior features will all factor into a rent assessment.
Time of year can have a significant impact on rental rates. Typically, demand for rental properties is highest during the summer so tenants are willing to pay higher rates. To ensure that you can generate plenty of interest from tenants, it’s a good idea to set lease terms that expire during the summer months, so you can re-lease when rental rates are higher.
The location of your property will have a major impact on the rental rate you can ask for. If your property is in a popular urban area, you’ll be able to list it at a higher rate than a property in a more rural area. Your property's proximity to local attractions and amenities will also affect the rent.
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Research into the market where your property is located is essential if you want to set a fair and competitive rental rate. Check out various listing sites and classified ads to help you figure out what the going rate is for properties similar to yours.
The cost of utilities is another big variable that can change drastically depending on the location of your property and the size of the unit or home you’re renting. You can reflect on the utility history to help you determine how much utilities will cost on average for future renters. Lots of renters prefer the convenience and consistency of utilities included in their rent, allowing you to wrap this cost into the rent.
How to set rent
Once you’ve got the basic information about your property and have determined the factors that play into setting rent, it’s time to find that magic number. Here’s how to approach settling on a rental rate:
Take stock of all features and amenities
You should compile a list of all of the features and amenities that your rental has to offer, to help you determine what a fair price is. Consider how many bedrooms and bathrooms your rental has, whether it has any shared or private outdoor space, what the location is like and what kind of interior updates it has. All of this figures heavily into assigning a fair rental rate.
Get a second opinion
It’s worth it to ask for a second opinion from a professional who knows the market and has first-hand experience with tenants looking for rentals in your area. A realtor will be able to provide you with an honest opinion about how much rent is reasonable for your property. Even if you don’t enlist the services of a realtor to help you rent your property, you can still rely on them for a value assessment.
No matter how much research you do in advance, you might notice your listing isn’t getting very much attention from prospective tenants. If that’s the case, you might need to adjust your rental rate to better-reflect the market. You should be willing to make small adjustments to improve the performance of your listing and generate more interest from potential renters.
Setting rent is all about doing your research and adjusting when you need to. You don’t need to worry about setting the perfect rental rate right out of the gate—simply stay consistent and keep your rates reasonable to keep your property competitive. Researching, setting and adjusting rent will help you maintain good, positive cash flow from your rental property.
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