If you own a rental property, one of the most important things you should know is how to set the right rent price for your rental property. The right price is a crucial aspect that can significantly impact your potential to earn profits and retain qualified tenants.
A rental home that is priced correctly is more likely to attract good tenants that stay long-term. It will also generate sufficient income to cover your expenses while leaving you with higher profit margins.
On the other hand, a rental home that is not priced correctly can be detrimental to your profitability. For instance, if you price your rental property lower than it’s worth, you’ll miss the opportunity to maximize profits. But if you price it higher than you should, you risk not being able to attract tenants.
So the question is, how do you know what the right price for your rental home is? There are several factors that can affect a rental rate. As a landlord, it’s essential to be familiar with these factors so you won’t make mistakes when setting the rate.
Rent Determining Factors
Typically, rental rates are determined by the following:
Location
Some locations are naturally more expensive than others. Usually, big cities are expected to have higher rental rates compared to smaller cities.
The economic state of the location also affects its rental market. This is because a place with a good economy attracts new residents. And new residents need a place to live in, increasing demand and rent prices for rentals.
Demand for rentals
Rental rates will generally depend on the market demands. When the demand is high, rental prices will ultimately shoot up as well. On the other hand, when the demand is low, it’s important to know how to adjust your pricing too. The right rental rates are adjustable depending on the demand for rentals.
Amenities
The amenities that you provide to your tenants can help increase the value of your rental property. Clearly, the more useful amenities you provide, the higher the rent you can charge. This is the reason many landlords perform certain home improvements and renovations to their properties before listing them on the market.
How to Set the Right Price for Your Rental Home
Now that we have discussed the factors that can affect a rental home’s rate, the next thing that you should learn is how to find the right price for your rental unit. Remember that setting the wrong rental rate can limit your opportunities to maximize your income. When pricing your rental home, make sure to do the following:
Analyze the Rental Market and the Competition
The first step to knowing the right price for a rental property is to do your research and study the market.
Find some comparable rentals so you can analyze the competition and see how similar properties in your area are performing. Through this, you’ll know the average rental rates of properties with similar features to yours.
To find the best rental comps, look for properties that are very similar to yours. Here are the things that you should consider:
- Amenities: It’s also challenging to find comparable properties that have the same amenities as your units. But as much as possible find units that offer similar amenities and see what their rental rates are priced at.
- Neighborhood: The properties that you are comparing yours to should be in the same neighborhood. If you cannot find rental comps within the same neighborhood, at least choose properties that are located in areas that offer similar amenities.
- Property type: When comparing properties, you should compare apples to apples. This means that if your rental home is a single-family house, you should find other single-family houses within the same neighborhood or close to your area. You should not compare apartment units to single-family homes.
- Property size: While it’s difficult to find similar properties of exact same size as yours, finding rentals that are close to your rental’s size is recommended. You should also consider the number of bedrooms and bathrooms when comparing sizes.
Determine the Value of Your Property
After studying the market and analyzing the competition, the next step is to determine how much your property is worth. Newly built homes are usually more expensive than older ones.
Also, if your property has been recently renovated, it can also add more value. To assess the value of your rental home, you should also check the amenities that you offer to your tenants. If you have new or energy-efficient appliances you can charge a higher rent.
If you provide additional features that are considered desirable to renters such as a walk-in closet, a bathtub, smart-home technology, or a security system, you could always factor those in when assessing the property's value.
Get the Opinion of a Property Manager
Professional property managers are knowledgeable of local market trends. Based on these trends, they’ll be able to gauge rent price adjustments. This is the reason why it’s recommended to work with a professional property management company if you are unsure about how to price your rental property.
Working with a property manager can also help eliminate potential errors of rent pricing and rent collection. This is because you don’t need to manually gather the market data or continuously compare your properties to others in the area. The property manager will provide everything that you need and make recommendations that benefit your investment.
Most rental property managers use dynamic pricing technology to decide the right rental rates depending on the season and the demand for rentals. When choosing a property manager to work with, make sure to check the company’s level of experience.
Bottom Line
Pricing your rental property correctly ensures steady earnings and long-term tenants. To set the right rent price, you’ll need to do ample market research and assess the value of your property. If you would like help with this, consider working with a management company.
You want to work with a property management company that will not only help you set the right price for your rental home but who will also help you choose the right tenants for your property. If you need a property manager in Raleigh, contact KRS Property Management at 919-745-8997.