When it comes to being a landlord one of the hardest questions to ask yourself is how much you should charge your tenants for rent. After all, you don’t want to price yourself out of the market. Here are some considerations that can help you make that all important choice.
Estimate Rent With the Value of Your Home
The value of the home is a great way to determine how much rent you should be charging. There is a simple but effective method that has been recommended by investors in rental property for a long time. So, what is this golden rule of thumb? It’s quite simple really; the rent you charge should be equal to 0.8%-1.1% of the value of your property.
The higher the value of the property, the lower the rent percentage will be. If you are renting out a home that is worth around £100,000 then you would be charging around 1% of that, or $,1000 per month in rent. If you have a more valuable property – closer to $300,000 for example – it would be more prudent to charge 0.8% of the value, which is around $2,800.
It’s a good idea to avoid charging less than 0.8% of the value of your property in rent each month because you need this safety net to keep your rental profits safe against increases in mortgage rates, property repairs, and extended vacancy periods.
While you can get a good estimate on monthly rent using this method, you shouldn’t rely on just this to determine the rental amount.
Compare the Rents of Similar Properties in your Area
Comparing the rental prices sounds simple enough, but it takes some attention to detail to accurately compare apples to apples. The size and condition of the rental property that you compare yours to needs to be as close as possible. You should also limit your search to recent rental prices (IE, no further back than six months).
You should aim to compare the average rental prices of properties in your neighbourhood, which is to say within a mile. If you aren’t able to get enough data with this limit, then look at rental prices across your town.
An online classified ad service offers some of the best data for determining how much rent you could conceivably get for your property. Another great bonus of using these sites is that they sometimes have a section for people looking to find a home you can use to find new tenants.
Talk to an Agent or Broker
No one knows the real estate situation in your area quite like agents and brokers. They may charge you a fee but it’s hard to deny that it would be worth it. You can do the work for yourself, but nothing will ever be as effective as bringing in the professionals and getting their opinion. Also consider talking to your friends and family that are renting properties in the area. Find out how much they pay in rent and compare their rental properties to yours. Charging a fair amount of rent is tantamount to getting a good tenant and keeping them, so do the legwork to ensure you charge fair rent for your property.