As a landlord, you have to set the rent for your hard-earned investment property. How do you go about doing this? There are many factors to consider:
Your interest in maximizing revenue vs. finding a long-term tenant##
When a high paying short-term tenant vacates, the property may require refurbishing again (sigh) before renting it. This costs time, money and headache.
A troublesome tenant willing to pay more than what you ask is also not worth it. The damage they cause requires a lot of time to fix. You might end up going the eviction route, cleaning up the huge mess including redoing floors, walls and windows. You want to do your due diligence and pick the right tenant. Use HomeKasa's tenant screening process to help select the right fit.
3 steps to tenant selection
How to screen tenants
HomeKasa recommends a multi-angle approach when it comes to setting the final rent amount for your investment property.
Determine the market price for your neighborhood for comparable homes. You can look at Zillow, Craigslist and other sources to get some ideas. They don't reflect the adjustment for the condition of the house. If you have been keeping your rental property well updated and decorated, you can adjust the rent higher. If it is not updated, you have to adjust the rent lower.
Improving rental property on a budget
Pros and cons of improving rental property
Factor in the value offered by your property including nice appliances, clean floors, great schools, paid utilities, etc. Be realistic - people tend to think that their property is the best. If you demand a high price that is unreasonable for the market, your house is going to stay empty for a while, costing you more in lost rent.
Let's do a simple math:
Market price = $1,000 for a 2-bedroom condo per month, $12,000 for a year
Your asking price = $1,100 per month, $13,200 for a year
Number of vacant months = 2, Lost opportunity = $2200
You may be better off taking a small cut in your expectations to reduce the vacancy time. Keeping the property vacant = money lost.
Rent is heavily determined by the timing. People tend to move and settle down during summer, during school breaks. The weather is nice, they want their children to get into the right school, etc. Your pool of tenants to pick from his high during summer. There's also competition with others listing their properties for rent.
Likewise, during Christmas, most people stay put in their homes. Unless there's a corporate relocation or a major life event, people generally don't change homes during this period. It becomes harder to find the right tenant and the market prices are usually lower.
If you set the price right, you may not have to negotiate with the potential tenant. HomeKasa doesn't recommend negotiating because if the potential tenant is unable or unwilling to pay the rent now, how are you going to increase rent the following year with the same tenant, if the market value increases? This just causes a lot of stress for everyone involved.
Understand what's happening around you in general. Are more people moving into your town (example Austin, Atlanta) or are people moving out of the town to seek better prospects.
Get a full picture of your expenses. Factor in taxes, repair and maintenance costs to determine what your outlay is. Afterall, you are running a business and you need to understand your income, expenses, gross margin and profits. Rent only speaks to the income, it doesn't tell you much about the overall condition of your business.
You job is to look at the full picture. Marry it with the deep and objective knowledge about the condition of your rental home. This will give you a good idea of how to set the rent amount for your investment property. HomeKasa helps to guide you on this based on our data science findings. HomeKasa is the best property management software, and it's free. Start now.