How to Set Optimal Rent Rates for Your Investment Property
As a rental property owner, you have a lot of responsibility. Finding a quality tenant, writing a lease agreement, maintaining the property, collecting rents, the list goes on and on. One of the most important tasks you’re responsible for that directly affects your bottom line is setting the right rent rate. How do you conduct due diligence to make sure you’re setting the optimal amount for rent, making sure you aren’t charging too much but also aren’t leaving money on the table? Let’s walk through a few ways you as rental property investor can calculate the right rent to maximize your investment returns.
If you have a property manager, they can alleviate a lot of the stress and heavy-lifting that goes into owning and operating rental property. They can also be an asset when it comes to setting the right rents on your property or investment portfolio, as well as placing a quality tenant and collecting on-time monthly rents. If you choose to self-manage or even if you have a manager and still want to do your own research to make sure you’re getting the most out of your investment, there are a few things you can do to understand the true rent potential for your property.
The first tip is to simply research the surrounding areas. Go on showings if you can to get a feel for the other houses in the neighborhood. If physically seeing the neighborhood isn’t an option, use the online resources you have at your disposal. Scope out pictures of houses in the area; this will help you get an understanding of the competition and will open your eyes to the features that may set your home apart. Also, consider the area itself. Is the property in a good school district? Is it walkable to restaurants and entertainment? Would people be willing to pay a premium to live here?
Once you have a solid understanding of the property itself and the surrounding area, it’s time to delve into the numbers. Again, use the technology that is available to you for obtaining the information you need to make an informed decision. Look at the surrounding home prices and rental prices. Use tools like our affiliate rental analytics company, RentRange®, to get a report that pulls in comparable data to help pinpoint an optimal rent amount, or use the Market Metrics report to get a customizable report of the market trends over time. Be sure to include your own expenses when calculating rent too - mortgage, HOA, taxes, insurance, etc. should all be covered with the monthly payment while still allowing you to keep a portion for profit.
Keep in mind the seasonality of real estate and how it can affect the rent amount you can collect from your tenants. Landlords who set lease expirations in the summer months will be able to increase rental rates more justifiably than those expiring in colder months when people aren’t as apt to move and demand for rental housing is lower. If your renter base tends to be families, consider the fact that they will not want to uproot their kids during the school year. At lease expiration, you will want to conduct your due diligence again to find an optimal rate that doesn’t push a good tenant out but still keeps your rental business profitable.
Setting rent rates is a science and it’s ever-changing. Do your homework and be sure you aren’t leaving money on the table! If you want to make sure you are setting fair and optimal rents, visit rentrange.com to get started. Simply enter your property’s address for a property-level report that includes a rental estimate using our proprietary rental algorithm, confidence score, and other market-level trends to get a better grasp on the surrounding area.