In the rental industry, price is a major ruling factor. Not only does it affect tenant’s ability to afford your property, but the price also contributes to how much profit landlords have at the end of the month. But how does a landlord know how to price a rental property competitively while maintaining a healthy margin? Join us below as we discuss factors that weigh on how much to charge, plus helpful online tools to help estimate potential rent in your area.
How to Price a Rental Property Using 5 Simple Factors
Wouldn’t it be great if landlords could simply name their price? When it comes to how to price a rental property, the local market is the number one ruling factor, not the landlord. However, there are other aspects owners should consider to choose a competitive yet profitable rate. So, check out these 5 factors below that help landlords determine how to price a rental property.
- Who is Your Competition?
- What are the Property Amenities?
- How Much Do You Need to Cover Expenses?
- Is the Local Market Performing Well?
- Is Anyone Calling or Requesting Viewings?
Who is Your Competition?
Rule #1, who is your competition, and how much are they charging? The answer has a significant effect on how to price a rental property. The goal here is to look for other rentals as close to your property’s specifications as possible. Additionally, stick to properties within your direct area, if possible, for the best comparison results. Prices may vary widely depending on location, and it is important to compare apples to apples.
So, when looking at the competition, find homes that have similar –
- Type of Property (single- or multi-family)
- Number of Bedrooms and Baths
- Square Footage
- Year Built (new construction or older home)
What are the Property Amenities?
In addition to sizing up the competition, amenities and features matter when it comes to how to price a rental property. For example, ask yourself the questions below –
- Does the unit have upgraded appliances?
- Is there a washer and dryer?
- Does the home have hardwood flooring as opposed to carpet?
- How about a view – is it a good one?
- Is there onsite or private parking?
- What services, transit, or entertainment options are nearby?
- Does it have added space for a home office or den?
- How about a finished basement or a great fenced yard?
While not every amenity will matter to every tenant, the important thing is not to sell yourself short by skimming over desirable features. Therefore, any upgrades or amenities that separate your rental from others in the area should be celebrated.
How Much Do You Need to Cover Expenses?
Profit is the goal of any rental investment. However, before deciding how to price a rental property, you must calculate how much is needed to cover monthly expenses. In addition to netting some profit for the landlord, monthly rent from your tenant should, at minimum, cover the mortgage. Additionally, a percentage of the rent needs to be set aside for emergency maintenance and future vacancy costs. That said, if the rental rate cannot cover expenses, the landlord has either set the wrong price or may be over-invested.
Is the Local Market Performing Well?
The temperature of the local market has a lot to do with how to price a rental property. So, if demand is high and inventory is low, that can drive up prices. Alternatively, a bad economy can wreak havoc on landlords forcing them to drop prices. Also, keep in mind that the rental seasons come in cycles, and the target tenant pool in your area matters. For example, if your property is located in a college town, the busiest time is likely the few months before a new semester begins. Furthermore, if the property attracts families, they will want to settle in the Summer before the school year starts.
Is Anyone Calling or Requesting Viewings?
If you have a great property in a desirable area yet no one is calling, you have a serious problem. Setting the rent is not always a one and done process. Instead, for the duration the property is on the market, landlords must continually evaluate and reevaluate. The number one reason a rental property sits on the market is the price. So, if no one is calling or interested in your unit, the price could be to blame. Instead of going up and down trying to gauge interest, use the factors above to set a fair and profitable price right from the start.
Top 3 Rent Estimate Tools to Help Decide How to Price a Rental Property
We have established that neighborhood competition is directly linked to deciding how to price a rental property. So, how can landlords quickly and easily view this comparison information? Well, thanks to technology, there are several great free and paid websites to assist landlords in doing just that. Take a look at the top 3 online rent estimate tools below.
- Zillow Rental Manager
- Rentometer and Rentometer Pro
- My Rent Rates
Zillow Rental Manager – Free
By now, everyone in the industry and likely outside the industry has heard about Zillow. They have cemented themselves as the go-to name in all things real estate through their easy to use platform. This is great news for landlords and investors looking to tap into Zillow’s vast collection of market data and metrics.
Although there is controversy surrounding Zillow’s Zestimate algorithm, Zillow’s online rent estimator tool is great for landlords. Simply enter your property’s address, and Zillow kicks back information on local comps in the area. Also, the estimate will show what Zillow has as your property’s specifics. So, always review this section for any discrepancies in bed/bath count or square footage since this will impact the result.
Rentometer – Free Trial and Paid Premium Service
Offering both a free trial version and expanded premium service, Rentometer is a fantastic resource when deciding how to price a rental property. Property owners enter their rental information, and Rentometer responds with an average rental rate based on the specifics provided and median rents in the area. Unlike Zillow, this site does not pull property information from public records based on the address. So, you will need to enter it.
If you are looking to go one step further and evaluate competition in the area, Rentometer Pro is the way to go. Landlords can use reporting to quickly see how their rental rate stacks up against the competition. The Pro version allows owners to customize reports based on the following –
- Building Type
- Square Footage
- Location Radius
- Listing Date
Pricing for Rentometer Pro starts at $19 per month and goes up to $199 per year. However, there are often discount codes available or sales that offer up to 50% off.
My Rent Rates – Free
Like Zillow, My Rent Rates uses public record information on your unit to determine how to price a rental property. Once landlords enter their address, My Rent Rates provides a free rental analysis along with an average rental rate based on the number of bedrooms.
Additionally, this site offers helpful articles and advice to help landlords stay updated on what is new in the industry.
How to price a rental property depends on several factors and requires some legwork on the landlord’s part. However, by using technology to your advantage, gauging market trends and local competition is easier than ever. While these sites offer convenience, the best market advice comes from a local expert.
At Bay Property Management Group, we offer something the website does not, hands-on, in-person experience in the neighborhoods that matter most to you. So, if you are looking to market your investment property for the first time, or are facing an upcoming vacancy, lean on a local property management firm for help. Give us a call today for a free no-obligation rental analysis to see what professional rental management can do for you!