How Much You Should Charge for Rent

Rent is a necessity for most people, but it doesn’t come without its problems. Many individuals are spending more than they can afford on rent and have put themselves in debt to landlords. How much should you price your rent so that you don’t end up like them?

The amount of rent you should charge every month is commonly determined as a proportion of the value of your property. Rent should be roughly 1% of the property’s worth, according to an aggressive rule of mind, but a more practical range is between 0.5 and 0.8 percent, depending on your area and amenities. For long-term rentals, this formula is utilized.

How to Work Out Your Rental Cost

The basic rule of thumb is that monthly rent should equal around 1% of the property’s worth. This is, however, a rather high percentage; anywhere between 0.5 and 0.8 percent should give you a more realistic result. Consider the following scenario: your rental property is valued $600,000. $600,000 multiplied by 0.5 percent equals $3,000. Keep in mind that this is an optimistic figure; a more realistic range, depending on geography, is 0.5 to 0.8 percent.

The location of your property on the rental pricing scale is also influenced by amenities. Undesirable facilities or a lack of amenities may place your rental property in the lower rent range, while desirable amenities or a lack of amenities can put your rental property in the higher rent range. For example, in a three-story building without an elevator, your rental price will be reduced by 0.5 to 0.8 percent, placing you on the low end of the 0.5 to 0.8 percent range.

The following are some of the characteristics and facilities that influence the cost of your rent:

• Addition of a swimming pool.
• Elevator: Increases the cost of renting.
• On-site parking raises the rental fee.
• Providing security or a doorman.

Aside from these considerations, the total worth of your house will have an impact on your rent. While there is no hard and fast rule, a lower-valued residence may normally charge a higher monthly rent as a proportion of its entire worth. Rentals valued at $100,000 or less, for example, may often charge rent of 0.8 percent or even more than the 1% rule of thumb. Rents are substantially greater for a much smaller fraction of a home’s entire worth.

This rule of thumb is unlikely to apply to short-term rentals such as holiday rentals or temporarily renting out a room in your house. Instead, see what similar homes in the same region are charging on vacation rental services like Airbnb. Examine the site and contrast your home with three other properties that are comparable in size, condition, and location. To get your nightly rental rate, add the nightly prices of these comparisons together.

Additional Options for Rent Pricing

There are various methods, in addition to the 1 percent rule, for determining how much to charge for rent or verifying the figures you computed using the 1 percent rule. These include obtaining pricing opinions from three local real estate agents, researching typical rentals in the region, and doing a rental market study (RMS). Here are four more options for determining how much to charge for rent.

1. Examine the area’s average rents.

The average monthly rent in the United States is about $1,231 dollars. Rents, on the other hand, vary greatly throughout the nation. It’s fine to utilize rule-of-thumb calculations, but looking at real average rents in your region is a useful litmus test for determining the pricing. This should give you a good idea of what your rental property is worth (or should be worth).

Going to real estate websites like Zillow or Realtor.com is the simplest approach to determine typical rents in your region. You may run a fast search by ZIP code or vicinity to your area to discover both what homes have previously leased for what similar properties are now on the rental market for and how much they are renting for. Finding a minimum of three comparables to average should be quite simple.

The median rent is calculated using the Zillow Rent Index (ZRI), which is a smoothed, seasonally adjusted assessment of the median anticipated market-rate rent in a certain area and dwelling type. The ZRI index is a dollar-denominated version of the repeat-rent indexes. On June 22, 2018, data was obtained from Zillow.com/data. Zillow makes the aggregated data on this page freely accessible for non-commercial use.

Asking a local real estate agent or property management about typical rentals in your region is another option. You may find local real estate agents or property managers in your region by searching online or visiting one of their locations. Finding three or more similar rental apartments to your own and averaging their rents should be your objective.

You may also phone the numbers on for rent signs while driving about your area to enquire about rental costs, amenities, and other unique characteristics. This is the least recommended method since you won’t have access to photographs and information to compare all of the homes.

How to Make Property Comparisons

It’s critical to find at least three comparables while searching for typical rentals in the region. You can compute the erroneous rental average if you don’t compare your rental to comparable units on an apples-to-apples basis.

When comparing rental homes, keep the following in mind:

• In an urban region, they should be within three blocks of each other; in a suburban area, they should be within a couple of miles; and in a rural location, they might be much further apart.
• Square feet: Should be comparable, at least within a few hundred square feet; only include square feet used inside.
• If it’s a single-family house, the lot size is crucial since most tenants prefer some form of the outside area.
• The number of bedrooms must be equal; do not compare a two-bedroom flat to a three-bedroom one.
• The number of bathrooms: They should be comparable; don’t compare a one-bathroom property to a two-bathroom property.
• Condition: It must be in a comparable state, such as being updated or not.
• Facilities: If the apartment and the building have similar amenities, you may compensate for them.
• Days on the market: If a home has been on the market for more than 60 days, it may be overpriced or have a flaw.

2. Consult three real estate agents in your area

We propose that you consult with three separate real estate agents regarding the price of your rental property. Most real estate brokers will talk to you for free and give you a rental price recommendation. You may use the average of the three rental price recommendations as a reference for choosing your rent price if you’ve got a few solid rental price ideas.

Find a local real estate agent you can trust by searching them up online and emailing them, or going to an open house or a real estate office and meeting with them in person. Local real estate brokers are generally the most knowledgeable about what’s happening in the neighborhood in terms of development and facilities, as well as normal rental pricing.

The following are qualities to seek in a real estate agent:

• The specialty of the agency, such as commercial, residential, or holiday rentals.
• How long has the agent been in operation?
• Rental experience of the agent.
• Someone who works full-time and isn’t juggling schedules.

If you’re searching for a real estate agent in your region, the National Association of Realtors (NAR) web directory is a good place to start. You may also go through Realtor.com’s network for area agents who can assist you in determining your rental pricing.

3. Perform a return merchandise authorization.

In general, you should undertake an RMA, which is akin to comparative market analysis, to gain a thorough picture of the rental market in your region (CMA). An RMA is a formal study performed by real estate investors to gain a pulse on a rental market, identify possible properties to purchase and compute average rents.

This is time-consuming, yet it is often utilized by investors. If you currently own a home, this may not be the ideal strategy for you. However, if you want a thorough overview of the general rental market in your region, including typical rentals, this is the method to use.

An RMA entails the following steps:

• Examine the surrounding area: Determine if you want to buy a home in this area based on transportation, school ratings, attractions, and crime.
• Examine the rentals of similar properties: Use three properties that are comparable in terms of square footage, condition, and location.
• Calculate the comparables’ pricing per square foot: To get the price per square foot, divide the rental amount by the number of square feet.
• By multiplying the price per square foot by the size of your rental, you may get the following result: Once you have an average price per square foot for the region, multiply the amount by the size of your property to price out your current rental or possible new investment.
• Adjust the rental price to account for amenities: Valet parking, a fitness facility, or a swimming pool will all raise the rental price. Other factors, such as having a fourth-floor walkup, might lower the rental cost.

An RMA is appropriate for investors to determine whether or not to acquire an investment property. It’s also appropriate for investors who already own an investment property and want to ensure that their rent is set at a reasonable market rate.

It is often not appropriate for homeowners, casual investors, or vacation property owners since it is time-consuming and in-depth. These individuals often want a more broad understanding of reasonable rental pricing in order to attract eligible tenants, compete with other rental properties on the market, and assist cover the expenses of ownership.

4. Investigate vacation rental websites

Check out famous vacation rental services like Airbnb and VRBO if you want to rent out your home for a short period of time. Compare the nightly prices of comparable rentals in the same region by looking around. This will serve as a starting point for determining the price of your product.

We propose comparing at least three homes to yours and then setting your rent based on the average rental price of the three. For instance, you come across three identical houses that are leased for $350, $275, and $290 per night, respectively. The sum of the three digits is $915. Then split $915 by three to get $305, which means you may rent your short-term rental property for $305 per night, all other factors being equal.

Keep in mind that while comparing short-term rental homes, factors like in-unit and community facilities, proximity to attractions, cleanliness, and convenience should all be considered. Consider how you’d want a vacation rental to be, and that’s how a renter would most likely want it. Your nightly rental fee may rise or decrease as a result of these circumstances. The following are some key short-term rental comparisons:

• Facilities: Both in-unit and shared amenities are significant, and amenities like a pool, hot tub, and media room all contribute to the rental price you may set.
• Nearby attractions include beaches, mountains, and tourist destinations; the simpler they are to reach, the better.
• The square footage, number of bedrooms, bathrooms, and the number of people that can sleep in your apartment are all factors to consider.
• Outside area: Any outdoor space might increase the cost of your rental.
• Property condition: Unless the property is original, such as a primitive hut in the woods, clean and renovated is always preferred.

5. Rent amount can be adjusted depending on amenities

Even if you have a fixed amount in mind for the rent you want to charge, your amenities may need you to change that price. The cost of your rent is heavily influenced by the amenities available. They don’t always account for a particular monetary amount, but they do influence how fast your property rents and the pricing bracket it falls into.

There is no universal guideline regarding how amenities influence the rental price. However, attractive features like valet parking, swimming pools, and fitness centers may elevate your home to the top of the rental market. It also works the other way around, as a lack of facilities may place a unit at the lower end of the rental market.

There are two categories of amenities in general:

• A swimming pool, a gaming room, or valet parking are examples of communal or on-site facilities that benefit everyone residing in the building or homeowners association community.
• A patio, washing and dryer, and walk-in closets are examples of in-unit facilities that are exclusively for the tenants in the property.

Facilities offer convenience for renters, which is particularly significant for short-term tenants who are willing to pay extra for specific amenities. This is where understanding your community and the demographics of the people who rent in the region might come in handy. Your real estate agent should be able to tell you what kinds of facilities renters desire and don’t want.

Surprisingly, reliable cellphone connection is the most important feature for 98 percent of renters. A walk-in closet is a close second, while soundproof walls and an outside area finish off the list.

Why Is It So Important to Set the Right Rent Price?

Setting the appropriate rent price is critical for a variety of reasons. To begin, you should rent your home for fair market value in order to quickly attract appropriate renters. You’ll also want to charge enough to cover your overhead and generate a profit, indicating that it’s worth your time and money.

If you set your rental price too high, you’ll likely have no takers, and your property will lie on the market for a long time, increasing your holding expenses. If the price is too low, though, you risk attracting more unpleasant renters and not being able to keep up with your property expenditures.

When determining how much I can rent my home for, you must first identify why you are renting it out. If the house is a full-time rental, for example, you’ll need to set the price high enough to make a profit. If you’re only searching for money to help pay for your vacation, a particular dollar number isn’t as critical as it is if you’re renting out your main house while you’re out of town.

Conclusion

If you set your rent too expensive, you won’t be able to find enough tenants, and your property will remain unoccupied, resulting in negative cash flow. You may not be able to cover your carrying expenses if you charge too little for rent.