In a perfect world, the rent for your investment property would be the amount that would make the most money. Unfortunately, in the real world, tenants have an ample selection of rental homes, apartments, and condos, so you have to set your rent appropriately.
Ultimately, the objective is to set the rent at the highest point you can. You want to attract tenants, cover expenses, and hopefully have a little leftover. However, if the rent is too high, you may have to deal with vacancy losses.
- Desirability of the Property
Do not set a standard price for all one bedrooms, or a standard difference in price between one bedrooms and two bedrooms. Unless the units are exactly identical, this strategy will hurt you in. You should charge slightly different rents based on the desirability of the unit.
You have a 4-plex with two vacant apartments, each a two bedroom. One is on the ground level and the other is on the second floor. They are identical except for being on different floors, and the one on the first floor has a covered patio.
Prospective tenants who see both units will jump on the first floor unit because they think they are getting more for their money. Once other prospects learn the “good unit” is taken, they will likely search for apartments somewhere else because now they feel the second floor unit is overpriced. Charging a little extra for the first floor unit would be reasonable.
Set the Rent Based On:
- View– units with a garden or lake view are more desirable than those with a view of the parking lot.
- Updates-units with updated appliances, hardwood floors or other amenities are more desirable than those without.
- Square Footage– a 1,000 square foot one bedroom is more desirable than a 700 square foot one bedroom.
- Layout– units with galley kitchens are less desirable than others with a full kitchen.
- Floor Level– higher floors tend to be more desirable. However, in properties without an elevator, you may have to start lowering the price because people will not want to go up and down more than two flights of stairs. Floor-level desirability also tends to vary by region.
- Extras – an extra closet, balcony, or amenities can make a unit more desirable.
- Be Competitive
Research similar rental via the newspaper and online ads. This will give you an idea of current rental rates in your area. Keep a watchful eye for units that rent quickly, those that may have lowered rent, and the ones that seemingly never get rented. You may want to go check out some of the units in person and compare them to yours. Ask the landlord if there is a lot of interest in the property.
- Attract Tenants
If you’re not getting calls, or no one is coming to see your unit, your rental rate is likely to blame. If your rent is set too high, or even too low, prospective tenants will steer clear. To succeed as a landlord, you will need to find the perfect price point.
- Market Demand
Unlike Ronco Rotisseries, rental rates are not something you can just set & forget. You must constantly look at the market and adjust the rent based on demand.
Basic law of supply and demand: the greater demand for your unit, the higher rent you can charge. With less demand, you may have to lower the rent.
- Make a Profit
The right rental rate should at least be enough to cover the expenses for the property, such as your mortgage, maintenance, and even vacancy costs. For owners paying a mortgage, you may not see an actual profit until you sell the property or have owned it a long time. If your unit isn’t benefiting you in some respect, either by paying down your mortgage or putting money in your pocket, you may not be renting for the highest and best value. It is possible, also, that you over-invested.
If you are not a professional investor and landlord, it may be time to seek out the services of an experienced property management company. In addition to valuating your unit and getting you the best rental rate, most offer a myriad of services freeing up your time, and greatly reducing your stress level.