Whether you are a first time landlord, expanding your rental business into new geographies, or have had a long-time tenant move out, you might need help figuring out how to accurately price your rental.
Doing this correctly right off the bat is crucial – price the property too low, and risk leaving money on the table for the duration of the lease. Go too high, and risk a prolonged vacancy and lost income.
If you are a professional landlord and investor, you probably collect rent online and are already familiar with these methods, which are often used to evaluate potential investments and projected CAP rates.
If you are not a professional, or if you are but still want to validate your approach, stick around and we’ll show you everything you need to know to price your rental right.
Start by Looking at Comparables
Like any other industry, the real estate market is competitive. When future renters look for rental properties similar to yours (in the same area with roughly the same size and features) they will compare them all with a focus on relative price.
The properties you are competing with in your area, as well as ones that have been recently rented, are called comparables. The relative list and final prices for these properties are the most important factors to look at when figuring out how to best price your rental.
As an example, it’s unrealistic to price a one bedroom one bathroom property for $2,000 per month, when most larger two-bedroom two-bathroom properties in the same area rent for $1,500 per month.
Renters looking at this property and comparing it to the market will quickly realize that it is significantly overpriced, and will remove it from consideration.
There are a few ways to gather information on the comparables for your property. These include researching rental listing websites, enlisting the services of a local realtor with experience in your segment of the market, or purchasing a comprehensive rent estimate report.
Adjust for Your Property’s Unique Attributes
Comparables work most of the time, but not all properties are created equal. What if your property is the only three bedroom available, in an area full of one and two bedroom units? This makes it a unique product.
After you’ve evaluated the competition, it’s important to make any necessary price adjustments to reflect the unique attributes of your property, for better or for worse.
Here are some of the most common property-related factors that can impact your rent listing price:
- Relative size – if you have the largest (or smallest) one bedroom in the area, you should likely charge more (or less) than the average one bedroom.
- Age and condition – a brand new or newly renovated property can garner a higher price, while a neglected rental will generally attract renter looking to save.
- Furniture – a furnished unit can typically command a higher price.
- Unique location – if your property has an ocean view, is close to the beach, or located on a high floor in a building, chances are you can get higher rent.
- Additional features – if your property has unique features like a pool, hurricane resistant windows, or anything else that renters will find attractive, you can likely increase your asking price.
Other Factors to Consider
Aside from the physical attributes of your property, there are some lease-related and other considerations to take into account when pricing your rental:
- Timing – if you are cutting it close to the first of the month, it might be worth reducing the rent to sign a lease in time as opposed to losing a full month’s rent.
- Tenant quality – while you should never increase rent to compensate for an unqualified tenant, you might consider reducing rent to lock in an excellent one.
- Upfront payment – a few months of advanced rent (beyond the standard deposits) will de-risk your investment and might be worth a price reduction.
- Utilities – depending on what is common in your market and the price of utilities, you could potentially pass the cost on to your renters or embed it in rent.
- Pet rent – charging a small monthly fee for allowing pets could be more profitable than a pet deposit or one time pet fee.
- Parking – if parking is scarce in your area, you could charge a monthly fee for it or include it in higher rent.
Once your property is listed the market will push you in the right direction. If you get a lot of attention but only receive a few low offers, your property is likely overpriced and you should reduce the rent. On the other hand, if you receive multiple offers at or above your asking price, consider increasing the rent.