One of the most important components to owning investment property is pricing your rental appropriately so that you maximize revenue while minimizing vacancy. Determining what to rent a property for can be somewhat of a science when trying to optimize your ROI. You will want to employ several different techniques and strategies when determining the right amount to charge for rent:
One of the most accurate and easiest ways to figure out what the market will bear in rents is by checking out the area.
This requires a little leg work on your part, but is going to give you the most realistic look at what you are facing. You can often find rental signs in the area posted with rental amounts, number of bedrooms and other details about the property. Calling these landlords and getting info on what they have for rent and what they are charging is a great way to get a feel for market.
The newspaper or online classifieds is another excellent way to check out what is available for rent in that area, Not only do you want to see what others are charging, you want to see how long it stays listed at that price. If properties are renting quickly at certain prices, you know that there may be room to price slightly higher.
Talk to a Property Manager
You might consider contacting a local property management company that you know has a large number of properties in your area.
If you don’t want to talk to them, you can always search through available properties on their website. I’ve found that many management companies price their properties at the high end of the market. You can typically use their pricing as a guide with the understanding that you may need to price yours slightly lower to be competitive.
Ask Your Vacating Tenant
While you don’t want to rely on this as a long term determination of rents, nor do you want to use it exclusively when making your decision, asking your vacating tenant whether they believe the property is priced right can be informative at the least. They may have information that could help you in your determination.
Price Slightly Higher
Another strategy is to price your rent slightly higher than what you think the market will bear.
After two weeks or so, you’ll know whether or not your price is realistic. I’ve done this in the past and have sometimes been pleasantly surprised to rent my property at a price higher than anticipated.
However, if after several days there is no response or poor response, drop the price. The right price is typically going to cause multiple potential tenants to seek you out.
Compare Apples to Apples
When comparing the comps on your rental property regarding rental rates, make sure that you are comparing property that really fits.
You don’t want to compare your single family three bedroom rental home to a three bedroom apartment in a nearby complex. This isn’t going to give you an accurate way of discerning appropriate rental rates for your property. Find property that is truly similar to your property if you are going to use it for comparison.
Talk to a Leasing Agent
You might want to take the time to reach out to a leasing agent in the area.
Leasing agents typically have a good handle on rental rates and neighborhood dynamics. You might be surprised what you can learn from someone that has experience leasing in your area.
Don’t Forget About Upward Trends
Take the time to consider how long you have been renting the property at the same rate.
If you have had a long term tenant in the property, you may not have adjusted rents along the way. In general, rents have increased over the last several years … even as much as 8% per year in some areas. You may want to simply make this adjustment and see how the rental applications go. Many times it is through trial and error that you hit the right number for tenant applications.
When you are facing a new vacancy you want to prepare well in advance for determining the next rent rate. As soon as you know you are going to have a property become available, start doing your homework to price the rental correctly in the market. Waiting until the tenant is out is not the time to begin your research.
Being as prepared as possible, even in something as simple as rental pricing, is one of the key components to your ultimate success.