Income Property Investing: How to Determine the Rental Price

Figuring out how much your rental unit is worth can be a challenge, especially if you’re doing it for the first time. However, you need to determine how much rent to charge to ensure all your expenses are covered and that some profit is being made. The last thing you want is to end up with overhead expenses and lose money on your rental units. With that said, here’s what you need to keep in mind when determining the rental price for your income property. 

Determine the Value

A good first step toward deciding on a price is to look at your home’s worth in the current market. Generally, this number should be higher than the price you originally paid for it, especially if you’ve done a good job calcularing after repair value. Websites such as Zillow allow you to estimate the value of your home if you don’t feel like hiring a professional home appraiser. However, if you’re looking for a more accurate assessment, it is best to have a professional check out your property. 

Overall, the property value is going to depend on the condition of the home, as well as home location and the local home sale prices. Once you have the property value figured out, move on to calculating the amount of rent you can charge. Usually, rents are around 0.8% and 1.1% of the home value meaning that a home valued at $250 000 would be rented out for anywhere between $2 000 and $2 750 per month.  

However, this won’t be the final number. In fact, you have to consider what other landlords are charging in your area. If your monthly rent is more expensive than the rent charged by your competition, you won’t get much attention from potential tenants.

Thus, you need to ensure that the rent is priced reasonably considering the average prices in the area. If you’re charging more, you will most definitely struggle to find a tenant. Check out websites such as Craigslist to see what the average rental rate in your area is. On top of your home’s worth and the average rental prices in the area, you have to consider the expenses that you will have to cover, including the monthly mortgage bill, taxes, and maintenance fees.

Things to Keep in Mind

The biggest challenge when it comes to determining the rental price is finding that balance between a reasonable rate and an amount that’s enough to cover all your expenses. Failing to calculate your mortgage expenses and additional payments will leave you short at the end of the month. However, you also need a price that is going to attract tenants once you start advertising the property. 

Otherwise, you will remain one step behind the competition. In some cases, you can even consider negotiating your price with the right tenant if you feel like a better deal could be made. Another thing you should ask yourself is whether you want to charge a late rent fee. This could be a good way of keeping your tenants accountable and motivated to make rent on time. On the other hand, you will be getting more money if they end up being late for one reason or another. 

Back to determining the rent price, there are a few questions you should ask yourself. For instance, do rentals in your area include utilities in their rent? If so, you ought to do the same to stay competitive. If your rental property is located in a neighborhood where tenants wouldn’t mind paying for utility fees, then feel free to set your rent and utility payments separately. Consider installing energy-efficient light bulbs and appliances to reduce utility fees. This is going to be a plus for your budget and for your rental advertising campaign.

Start Renting Properties Successfully

Getting to the point where all that’s left to do is find tenants and collect rent is not easy. You have to start by regulating the financing for your investment, finding the right property, negotiating and making deals, and doing the renovations. Each of these steps requires time, effort, and funds. Doing all of this on your own may sound like putting too much on your plate. That’s why it’s easier to go at it with the help of a mentor. 

I personally help people get their foot in the door when it comes to real estate investing by holding their hand through their first income property purchase and management procedure. Well, the rest is history. If you’re interested to learn how you can purchase your first income property 3 to 6 months from now, feel free to book a quick call with me and I’ll answer any questions you may have.