Rental Estimate – How Much Should I Charge For Rent?

As an independent landlord, it’s crucial to know that the key to success starts with setting a rental rate that makes money for your property and attracts good tenants. 

Figuring out the right rental price can be challenging. While you might want to charge a lot more than others in your area, setting the rent too high could mean your property sits empty for a long time. On the other hand, setting it too low will hurt your profits. 

Here, in this blog, you will find how to set the perfect rental price for your place. You will also get tips on getting a good estimate and why it is important to consider your amenities before deciding on your rent. 

Why is it Important to Charge Appropriate Rent? 

What makes a good rent price? Let’s quickly talk about why it’s so important to charge the right amount: 

1. Charging the right rent helps you find good tenants who pay on time. If you set the rent too low, you might not attract the right people. But if it is too high, you might struggle to find anyone willing to rent, which means you miss out on income. Your goal is to find the right balance – not too high, not too low. 
2. Charging the right rent also ensures you can cover your expenses like mortgage payments and other costs. Your property is an investment, and if you can’t pay for everything with your rental income, you’re not charging enough. 
3. Further, setting the right rent helps you make a profit. If you get the price just right, you could earn a significant profit each month. Also, landlords can typically keep around zero to six percent of the rent as profit after covering all expenses. 

How to Determine the Rent Price? 

If you’re unsure of how much rent to charge, here are some factors you should consider. 

Competitor Analysis 

When calculating a rental estimate, it’s important to know what rent the other landlords in your location are charging. While doing so, factor in points such as the square footage of your unit, number of bedrooms and bathrooms, age of the construction, lot size, and proximity to transportation stations. 

Rent Control Laws 

Rent control laws are regulations that aim at providing affordable housing costs to lower-income residents. The laws essentially put a limit on the rent you can collect from your tenants. Not all states have rent control laws; California and Oregon already have them in place, and Nevada, Washington, and Colorado intend to implement them soon. Before renting out your investment property, it is important that you check with a property management company or an attorney regarding these laws. 

Amenities 

When we say amenities, we mean both, shared as well as in-unit amenities. While providing extra amenities helps attract prospective residents, it also gives a boost to your rental income. Properties that have new appliances, rental units that have a swimming pool or gymnasium (or both!), rental homes having security systems, or properties with ample parking spots tend to fetch a higher rent. 

The 1% Rule 

Many property investors prefer following the 1% rule. It is a simple rule that calculates 1% of the property value as rent. For example, if your property’s value is $3,000,000, you will charge $30,000 as rent per month.  An important aspect to consider under this rule is that the rent charged should be greater than or equal to your mortgage payment. This will ensure that your investment does not face a loss and at least reaches the break-even point. 

Additional Expenses 

Building on the above-mentioned 1% rule, don’t forget to factor in the following additional expenses when you’re calculating the rental estimate. 

• Property taxes 
• Cost of repairs 
• Insurance 
• HOA fees, if applicable 
• Property maintenance charges 
• Landscaping and gardening, if applicable 
• Employee payroll, if applicable 

Rent Analysis Tools 

Rent analysis tools such as Zillow’s Zestimate, Padmaper, ApartmentGuide, Rent Fax, or Rentometer can help you calculate an appropriate rental amount for your property. The formula for such tools considers the location, number of bedrooms, square footage, and current market rate, among other important factors. 

Determine the Best Ways to Collect Rent from Your Tenants 

Once you have figured out how much rent to charge, it’s time to decide how you will collect it – either online or offline. This depends on your tenants, but it’s a good idea to provide different options for payment. Here are some ways to collect rent: 

1. Through a property manager: Even if you don’t have a property manager for everything, you can hire one just to handle rent collection. 
2. Face-to-face payments: You can meet with tenants to collect rent but be careful with cash payments. 
3. Mail: Tenants can send you a personal check, money order, or cashier’s check. 
4. Drop box: This is a secure option for rent payment, safer than mailing a check, and doesn’t require in-person meetings. 
5. Direct deposit: Set up automatic transfers from your tenant’s bank account to yours. 
6. Rent collection apps: You might use apps like PayPal on your phone or computer for rent collection. 

Research the Rental Estimate of Homes 

It’s crucial to compare your property to others in the area with similar features like amenities, bedrooms, and bathrooms. By using your competitors as a guide, you can figure out how much extra you can charge for any special features your property offers. 

Apart from the property itself, the neighborhood and nearby conveniences also affect the rent price. It was discovered that 77% of renters prefer to live in a safe neighborhood, and 57% consider their commute to work or school when choosing a home. However, with more people working remotely, this might change in the future. 

Maximize Your Rental Earning Potential with BFPM Experts 

Owning and renting out a place like an apartment or house can make a big difference in your money situation. A financial advisor can help you use this rental income to improve your long-term money plan. Finding a financial advisor doesn’t need to be difficult as BFPM can help you with trusted financial advisors. If you are ready to find an advisor who can help you reach your money goals, start now. 

If you’re not sure about investing in homes, apartments, or land, you can contact us at Beach Front Property Management. If you want to get your rental properties professionally and efficiently managed, feel free to book a 15-minute consultation call with our property management expert.