Whether you’re listing a property for the first time or the tenth, it’s important to confirm that your pricing is market-competitive. Setting a proper rental rate ensures that you’ll attract plenty of customers to the listing, while also being able to maintain a high standard of tenant screening.
In my property management company, we seek to set the rental rate in such a way that maximizes both interest and profitability. Here are some of the methods that we employ.
#1: HUD Website – Fair Market Rents
The annual report released by the U.S. Department of Housing and Urban Development contains Fair Rent data that is available for City/State and property size. While the methodologies and calculations are VERY thorough, this rate is simply a good average and starting point for a property the same size as yours. Variables that will raise or lower your rental rate include the property location (both immediate and surrounding), amenities like common areas, pools, and decks, and any utilities covered in the rent payment. Including all (common) utilities in the rent payment is a tactic often used to entice renters as well.
#2: Rental Property Comps
Similar to the way most homes are appraised, looking at comparable properties is a fantastic way to determine the rent that your home/apartment/condo can produce. The most important thing to look for are properties that most closely resemble your own. Having a similar number of bedrooms, bathrooms, and amenities will ensure that you’re not comparing “apples to oranges.”
Start in your own neighborhood. Location being the biggest variable, you’ll get the best idea of rental rates in your area by checking out the homes or units nearby. They’ll either list their rental price on a sign, or you’ll have to contact the property manager for additional details.
Looking online is also an important step. Sites like Craigslist or Apartments.com are great at filtering the listings so that you only see those most closely resembling your own. Again, knowing what’s included, where it’s located, and even whether they allow pets is what you should be most interested in.
#3: Use an Analysis Tool
One of my favorite automated tools is located on the Zillow.com website. Not only do they provide a property value estimate—they now give you a Rent Zestimate that takes into account square footage and available market data. While this info should also be used sparingly, it should help solidify that number that you’re now considering.
When a manager is confident about the rental range that their property can support, they often begin at the upper spectrum of this scale. If the property should stall or generate little interest, they can always adjust the rate down to “re-energize” the listing. Knowing that a vacant property carries a high opportunity cost, you may have to make a few adjustments to find that “sweet spot”. In the end, it simply comes down to maximizing profitability while minimizing risk.
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