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The Landlord Guide Series (Part 3): How Much Rent to Charge

February 1, 2019

Once your property is ready for tenants, it’s time to determine how much rent to charge. Settling on a good number is key. Charge too little, and you won’t earn all the income you could. Ask too much, and the property will likely sit vacant while you miss out on rental income.

Here are some strategies to consider when you determine how much to charge.

How to Research the Market

First, you have to get a feel for the market for comparable properties in your area. Study listings and units for rent locally and ask yourself the following questions to get an idea of how your property compares:

  • Is your rental located in an area that’s particularly attractive to tenants?
  • Is it larger (or smaller) than typical properties with similar specifications?
  • Is your property likely to attract certain groups, such as students, families, or young professionals?

Based on your answers to the above questions, you can hone in on comparable properties and adjust the rent up or down to account for positive and negative differences. Pay attention to how long comparable properties remain on the market. Those that get scooped up immediately may be well-priced (or underpriced).

If there’s a lot of competition for similar properties in similarly desirable neighborhoods, you can look at the average or median rent for guidance. Take into account how your amenities and features compare, such as whether parking is included or what the fee is for pets. You need to make sure your property is priced competitively, given what it has to offer.

Consider Operating Expenses

While the rent should be competitive in the local market, you also need to be able to cover your costs. Look at your budget and estimate your operating expenses. Consider what you’ll spend on mortgage payments, if any, insurance, taxes, and an adequate amount to spend annually to maintain and improve the property and make sure your investment will produce adequate income.

Flexibility with Tenants

In some situations, it might make sense to discount the rent in order to attract a great tenant. For example, if an applicant has a stellar credit score or is willing to sign a longer lease, you could offer a small discount on rent. Say you knock $100 off the $2,500 rent to seal the deal. In one year, you’d make $1,200 less, just half of what you would lose if the apartment sits vacant for just one month. If the tenant signs a longer lease, you’ll save the costs of vacancy between tenants as well as costs to turn over the rental.

For additional resources about setting the rent amount for your rental property, you can read this article on Investopedia.

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