If you are an independent landlord, then there are times when you might feel like you’re going up a creek without a paddle. It can be an intimidating and even overwhelming job. However, it can also be a lucrative business that can allow you to make passive income while also building equity.
You want to set a rental rate that is going to compete with the competition but also earns you a profit. If you find yourself wondering how much should you charge for rent, then don’t worry. You’re not alone. And luckily for you, we are here to help you figure out the answer to that question. So if you would like to learn more then keep on reading and we will take you through everything that you will want to know!
Know your Competition
In practically every market, rent continues to go up. It is worth understanding that no matter where you own property, the rent is likely going to rise. Rents also rose dramatically at the start of 2021, due to major rent pauses during the coronavirus pandemic in 2021.
Before you set your rental rate, you want to know what other landlords in the area are charging. In order to first figure out how much you should charge for rent, you want to look at market comps in the same area. Check out similar properties and see what other landlords are charging. This is a great starting point.
You can then adjust your rental rate based on your research. You should also check out fair market value estimations. These are updated every year by the United States Department of Housing and Urban Development (HUD). When you are looking at market comps, you want to make sure that you look for similar features. This includes the number of bedrooms, property condition, neighborhood, and size.
The two Percent Rule is Only a Guideline
You might have heard of the two percent rule. This is a theory that states that the rental income should be around one to two percent of a building’s value. However, keep in mind that this is just a general guideline. You still need to research market comps and take other factors into consideration. Also, property prices tend to rise faster than rent prices.
Don’t Forget about Seasonality
Your rent can definitely be affected by seasonality. This is a pattern that can be seen all over the United States. More often than not, demand for rental homes usually goes up during the summer and spring months. They then tend to drop as the weather gets colder.
There are several reasons why this pattern occurs. Mainly, it is because renters are less interested in moving all of their stuff when it is cold out. Moving isn’t easy. And it is even more cumbersome when you have to do it while it is snowing outside.
People who start looking for apartments in summer tend to move much quicker than people who start looking to move in winter. It is important to remember this point about seasonality. You might need to lower your rent if you are looking for new tenants in the winter. Otherwise, your building might just sit vacant. You are probably better off just waiting for summer and charging a higher rent.
Consider the Property’s Amenities
There is likely not going to be another building that is identical to yours. So some guesswork is going to need to come into play here. This is why you need to look at everything that your property has to offer.
For example, you might find similar properties but those structures might not come with a washing machine or central air. These are features that are going to demand a premium for rent. Let’s look at some other amenities that could lead to higher monthly rent:
Parking
To a lot of renters, available parking spaces are extremely useful. You should be sure to point out these kinds of details, such as if there is a lot of street parking or even a reserved parking garage.
Security
These days, everyone is concerned with security and safety. You will be able to give your tenants peace of mind by assuring them that you have some security measures in place. This can be in the form of a security guard, a technical security system, or several locked doors to the building.
Walkability
What’s the most important part of real estate? Location, location, location.
The more centrally located your property is, the more money you can charge your tenants for rent. If you are within walking distance from a major university, a train station, or a strip of stores and restaurants, you can raise your rent because you are making life more convenient for the people who live in the building.
Entertainment Factors
Is there a pool at the building? How about a gym, rec hall, or balcony? Do you supply wi-fi or HBO? If any of these amenities are available, don’t be afraid to take them into consideration when you are determining the rent.
The Importance of knowing How much should you Charge for Rent
Hopefully, after reading the above article, you now have the answer to the question about how much should you charge for rent. As we can see, there is no easy answer to this question. But by doing your own research, taking stock of what you can offer, and seeing what your competitors are doing, you should be able to come up with an appropriate amount.