How to Price Your Rental Property?
If you are planning to give your property on rent, you must price it correctly. By setting an appropriate rent, you will attract many tenants. This way you can reduce the vacancy rate of your property. Deciding a rent for your home is easy said than done. Most landlords find the process difficult and challenging. You must not set a “high” rent that can stop prospective tenants from approaching you. Likewise, your rent should not be too “low”. When you reduce the price, your profit margin will drop. This is why you must price your property carefully. You must take into consideration many important factors.
#1 Based on Amenities
Amenities in your rental property will help you set a price. All bedrooms should not have a fixed rate. Also, don’t set a standard difference based on the number of bedrooms. Only when your properties are exactly the same, can you follow this strategy? Most landlords decide rents based on how desirable the property is. Here are few factors that can help you set a rent:
- Does the apartment have a splendid view? Does the apartment overlook a garden and not a parking lot? If yes, you can definitely ask for few extra dollars.
- Does the property have updated units? Are there special hardwood floors and appliances? Do you have updated units worth thousands of dollars?
- How big is the property? Undeniably, 1000 square foot properties are more expensive than the 500 square foot ones.
- What is the property’s layout? Do you have a neat layout? According to experts, railroad-style properties are not preferred by most tenants.
- How tall is the property? Does the building have many floors? Most tenants look for properties in higher floors.
- Do you have extra windows, balconies, and closets? These features can make a property more desirable.
Here is a simple example of a looked-for property:
You have two beautiful one-bedroom apartments for rent. One property is located on the 2nd floor and another on the ground floor. These units are similar but the unit on 2nd floor has extra storage space and hardwood floors.
What would be the price of your 2nd and ground floor property? May you consider setting similar rents? Well, the property on the 2nd floor is more desirable than the other. You can charge few more dollars for the unit on the 2nd floor.
#2 Based on Competition
Does your property enjoy high competition? Competition is a great parameter for setting rents. When you go through online listings and local newspapers, you will see many properties like yours. These advertisements will help in understanding the net worth of your property. Check these advertisements for few weeks. Try to identify apartments with low vacancy rates. Also, check on apartments with low rents. If you have many landlords in your neighborhood with attractive properties and amenities, you must “change” your rent carefully. An over-saturated neighborhood with many properties is a tough market. If possible, visit the properties in person. Compare the unit with your property. Don’t forget to inquire if the property gives high returns. Once you have considered several properties, you will be able to set a “perfect” rent.
#3 Based on Rent
Remember, you need the right rent to attract high-quality tenants. “Tenants” are smart, budget-conscious people. They often look for properties with value. Most tenants don’t look for properties that are too-expensive or too-cheap. In simpler terms, they search for homes that are priced reasonably. To attract these tenants, you must price your property wisely. You need to identify the perfect price-point for your property.
#4 Based on Market Demand
According to experts, you should trust market demand for the right price. A lot of people set a rent for their properties and forget about it completely. Well, this is a bad practice. If you want to reduce your property’s vacancy rate, you must follow market trends and demand.
For example, the market for rental properties drops. People are no longer able to afford expensive homes. In such an economy, if you quote a high-rental figure, you are less likely to get high-quality tenants. Bad economies mean poor people and low rents. So, follow the market and your country’s economy.
As a golden thumb rule, you should decide a price based on demand.
#5 Based on Profits
Always remember, the right rent is required to generate profits. Landlords have unique goals and expectations. No two, landlords can be the same! Yet, the rent you quote must cover the following:
- Vacancy charges
- Maintenance and repairs
- PITI mortgage
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