When determining rental rates, you want to strike just the right balance between maximizing your profit and remaining competitive in your local rental market. Following are some tips for finding that magic number.
Look at rates of competitors
As a property manager, you want to create business strategies that work for you and serve your best interests. However, you still need to be aware of competitors and the marketplace around you. When formulating rent rates, make sure you know what you’re up against. And the quickest way to do this is analyzing competitive prices.
Rentometer
Rentometer is a great web-based program that will allow you to see how you rank in your neighborhood. Just enter your address, rental rate, and number of bedrooms to gain access to a computerized graphic showing where your rates fall in comparison to other rental rates in your immediate area.
Other Rental Listing Sites
While Rentometer is great for a quick overview, remember that it doesn’t take specifics such as square footage, upgrades, and amenities into account. To make sure you’re comparing apples to apples, also look at competitive rental listings on sites like Craigslist, Zillow, Rentals.com, Apartments.com, and local classifieds (both online and off). Look for places of a similar size, with the same amenities and upgrades and make sure that your rates are in the same ballpark.
If your rental rates are higher than those of competitors, make sure this is justified (for example, your units have more square footage or were recently renovated). When advertising properties to tenants, make sure that you tout those special features that make it worth more than competing rentals. It’s okay to have higher rates than competitors if the additional price is justified, but it should be clearly and immediately evident to potential tenants why your higher rent is worth it.
Listen to feedback from potential tenants/applicants
Pay attention to what applicants are telling you. If you consistently hear from those applicants that are out there in the field looking at other places that your rent is high, it may be time to do some research and consider lowering rents. Likewise, if applicants seem pleasantly shocked at your rental rate, make sure you’re charging enough. Sometimes the loudest feedback comes through vacancy rates—if you are having a difficult time filling units and know it’s a problem across the board in your area, do the research necessary to see if rental rates may be the culprit.
Keep your finger on the pulse of local events
Stay on top of what’s going on in your local market. For example, if you live in an area that is primarily driven by one key company and significant layoffs occur, be aware that this may well affect the local market to the point where you have to adjust rental rates accordingly. And, of course, remember this can work conversely as well. If a new company is moving to town and will bring with it an influx of new residents, this may present an opportunity to increase rental rates due to a more favorable supply/demand ratio.
Finally, remember that you want to re-evaluate rental rates on a consistent basis—doing so annually is generally a good rule of thumb. Also, always remain aware of what’s going on around you. If you notice that units are suddenly more difficult to rent out and you can’t attribute this to a normal marketplace ebb and flow (such as fewer potential tenants in town due to the end of the school year), evaluate your rental rates. As we all know from recent years, the market and economic environment can change quickly and without warning, which can impact rental rates.
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