Whether you’re a first-time landlord, an accidental landlord, or an experienced landlord with a new property, it can be hard to figure out how much to charge for rent. Charge too little and you could be leaving money on the table. Charge too much and you may have trouble finding tenants. So how do you calculate the right rent to charge?
We’ve got you covered. We’ll explain how to find the perfect rent to charge and even how to charge more for your property. Let’s get started.
How much should you charge for rent?
Get ready to rent out your property in no time. Here are four steps to calculate rental income:
Step 1: Look at other rental properties
The best way to calculate rent for your property is to research similar properties. You can check out other rental listings by browsing sites like Zillow or Apartments.com. These sites give you an idea of what other rentals are charging in your area, which is a good starting point.
You can also talk to property managers or other rental professionals (like a leasing agent). These rental professionals will have an idea of current market conditions. And they’ll know what similar properties are successfully charging for rent.
Another option is touring similar properties for rent. During this tour, you can ask the landlord, property manager, or whoever is conducting the tour how they decided on the rental price. This can give you insight into what factors you should consider when setting your rent.
Step 2: Adjust for property characteristics
After looking at similar listings, you should get a ballpark range for the average rental listing. You can use those listings to get a general idea of what market rate is. You'll then want to factor in your property's specific characteristics, including:
• Square footage
• Number of beds and baths
• Closet and storage space
• Updated design (appliances, counters, flooring, fixtures)
• Layout (open concept vs. divided floor plan)
• Single vs. multistory
• Location (schools, crime rates, proximity to shopping)
• Parking (attached garage, driveway parking, or street parking)
• Security (gated community, safe neighborhood, alarm system)
• HOA amenities (fitness center, swimming pool, outdoor gathering space)
Depending on your property, you should adjust the average rate up or down.
For example, you might find that the average property is renting for $1,500 a month. If the average property has four beds and two baths, but your property only has three beds and one bath, you should adjust your rent down. However, if the average property has outdated fixtures and is 1,700 square feet, but your property is updated and 2,000 square feet, you can adjust to a higher rent.
The average rental property rent probably isn’t an exact match for your property. Our recommendation is to do your research and compare your options to understand the rent cost of properties similar to yours.
Step 3: Consider minimum and maximum rent
After you’ve adjusted the average rent to better fit your property, you need to compare that number to your minimum and maximum rent.
Your minimum rent is the lowest rent you can charge to cover all expenses. Along with your mortgage, insurance, and taxes, you also need to cover any maintenance problems that crop up (like a broken HVAC). Depending on how involved you want to be, you should also consider the expense of hiring a property manager.
Charging less rent than the minimum means you’ll lose money on your property. If you charge the minimum rent, you’ll break even but not turn a profit on your investment.
The maximum rent is the maximum amount you can charge to cover all your expenses, make a profit, and attract the best tenants. Charging this rent will help you generate a strong cash flow and grow your property value.
After adjusting your rent in step two, you should arrive at a number that’s close to the maximum rent. You can tell if the rent you calculated is above your maximum rent if you have trouble attracting tenants.
Some landlords choose to charge slightly under their maximum rent. This can help you attract and keep tenants fairly easily. Tenants feel like they’re getting a bargain when they see that your property is priced slightly lower than others. However, you should only charge less than your maximum rent if you can still turn a good profit at that price.
Step 4: Keep an eye on the market
Unfortunately, the rent you set now likely won’t work in the future. Inflation pushes your expenses higher, meaning you have to charge more periodically.
Real estate market conditions can also change with the economy. In hard times, you might see rents going up because people can no longer afford to buy a home. This increased demand means you should also raise prices.
Seasonality can also impact rental pricing. In most places, people want to move when it’s warm. So, there’s more demand in the summer pushing rents up. However, in the winter, there’s lower demand – so rents fall.
Keeping an eye on the market can help you adjust the rent you charge to maximize profit. However, before increasing rent, make sure to check your local rent laws. That way, you won’t face legal consequences for raising rent.
How can you charge more for rent?
If you calculate rent for your property and it’s lower than you want, you have a few options to increase rent:
Make it pet-friendly
Making your rental pet-friendly can help you attract more renters. Be careful though. Unruly pets can cause havoc on your property. Consider a monthly pet charge to cover any repairs you’ll need to make when the tenant moves out.
Update appliances and fixtures
If your rental property is out of date, you can make simple changes to make it more attractive. You can swap outdated carpet for stylish wood or wood-look floors. Updating paint to neutral and on-trend colors is another easy way to improve your property. You can also update appliances. Switching out old appliances for new, energy-efficient appliances can be attractive to renters and reduce utility costs.
If you include utilities (gas, electricity, water, trash, internet)in your rent, you can charge a higher rent. However, you should make sure the higher rent more than covers utilities to increase your profit.
Turn a profit and keep happy tenants
Figuring out how much to charge for rent can be tricky. However, it’s important to charge the right amount to maximize profit and attract the best renters. By looking at similar properties, considering your property characteristics, figuring out minimum and maximum rent, and keeping an eye on market conditions, you can charge the best rent for your property.
Along with charging the right rent, it’s also important to protect your property. The right landlord insurance can protect your investment from unexpected events (like fire or natural disasters).
If you’re looking for the quickest and easiest way to get landlord insurance, Obie is the way to go. Obie offers a modern, transparent, and completely online process where you can submit a quote application in minutes.
Get your Obie quote today.