Are you new to being a landlord? Or thinking of buying rental property? There are a few things to learn if you want to manage a building yourself. It’s not rocket science. But one of the most important things a new landlord should know is how to set the right rent.
When renting a property, there is a lot to consider. Of course, you may simply want to set as high a price as possible and to see who will rent. But, pricing too high may mean that you won’t rent at all or may have costly vacancies in between rentals. Like pricing too high, pricing too low could mean you lose money on your property.
Rule #1: Be sure you are able to pay your bills
Renting out your property could land anywhere from no pocket profit to six percent profit in your pocket. In many cases, owners will not see an actual profit until they sell their property. Still, the rent should, at minimum, cover your mortgage, maintenance and repairs on the property and vacancy costs.
Rule #2: Know your competition
Remember, it’s not about what you think the property should rent for, it’s about what the market demands. Look at online and newspaper listings to see how much the competition is charging. You should also visit similar properties in person: after all, your potential clients will.
Rule #3: Price in the correct range
After you look at your competition, know what prices are similar to those of your property. Don’t just compare simple things like the number of rooms, take into account location, as well as the extra details that make up the property. While it is important not to overcharge, it is also important not to price too low. Pricing too low may even have an adverse effect, causing you to lose potential clients who will think it’s a poor property.
Rule #4: Details, details, details
Think of the details. If the property has windows facing a garden, the apartment is worth more than if it faces an abandoned storefront. Hardwood floors and updated appliances can justify higher rental prices, as can a nice layout, an extra closet or a balcony. And of course, square footage is related to the rental price as well.
Rule #5: Timing
Things unrelated to your physical property can also affect the price. For example, if renting near a college, demand (and rental price) will be higher shortly before the start of the new school year. This also applies to units that can house families looking for homes before the beginning of grade-school.
In summary, while it may be tempting to simply create a price based on your own idea of what the property is worth, a little research into the housing market can, in the long run, ensure that you rent the property as quickly, and as profitably, as possible.