All rental property owners ask, “how much should I rent my house for?” The answer can be somewhat complicated. Determining your rent price should be broken down by characteristics, including knowing your competition, seasonality, amenities, and rental control laws. Here’s a closer look at how to figure out how much to charge for rent.
Know Your Competition
Marketing your home for lease starts with a comprehensive look at the market. This research will help you understand what a well-qualified resident will pay you monthly. This research will help answer your question, “how much should I rent my house for?”If you choose a low market rate, you will not make as much money as you should. If you decide too high over the market rate, it takes longer to lease (another money waster) and your property might be leased to the wrong person.
Why NOT Leasing to Residents Who Will Pay Above Market Rent is a Good Idea
Generally speaking, two kinds of residents are willing to pay more than market rent for a house.
Not Familiar with the Area
The first type of resident who will pay above-market rent isn’t familiar with the area and, therefore, unfamiliar with what they should be paying. These residents wise up a few months into the lease and usually become short-term residents. They typically leave after a year, which makes them less than ideal residents for your rental property.
Less Than Qualified
The other type of resident who will pay you above-market rent is worse than the first. This resident is a less than qualified individual willing to pay more to tempt you to overlook their credit shortfalls.You may get excited that they’ll pay more than the house down the street, but be careful. You will be assuming more risk than is necessary, and if it turns out bad, an eviction could be in your future.If you want to learn more about choosing residents, we recommend you check out this podcast episode.>>
Seasonality Matters
Rent prices can be significantly affected by seasonality. Nationwide, rental property demand is highest during the spring and summer and is at its lowest during the year’s winter months.What this means for your rental property is that if you list it in the winter, it will likely stay vacant for longer. Some property owners might drop rent prices during the winter to avoid having their units sit empty for an extended time.
Consider Your Property’s Amenities
In your research to determine how much to charge for rent, you’ll want to consider the different amenities your property offers prospective residents. Some of the top amenities renters are looking for include:
- Outdoor entertainment areas
- Walkability
- Security and safety
- Parking
These add desirability to your property, and charging a higher rental rate accordingly might be reasonable.
A White Elephant Situation
In the opposite situation, your property might lack amenities that set it apart from the surrounding properties. For example, your backyard is significantly smaller than your neighbors, or all surrounding properties have garages and yours doesn’t.In this situation, renters may not show interest in the property if the rent price is the same as other properties in the neighborhood that are not lacking these amenities. It’s important to stay objective when facing a white elephant issue. The good news is there are solutions to the problem. You can add value to the property to get the rent price you want, or you can lower the price of rent based on its current value.
Check Rental Control Laws
Another important factor in deciding how much to charge for rent is to ensure you’re up to date on your area's latest rental control laws. These laws, dictated by city and state, can directly impact the amount you are legally allowed to charge for rent. You can look into the National Multifamily Housing Council resources for more information on general state rental control laws.
Find the Market Rate
While you are working on finding the market rate of your home, keep one fundamental truth in mind – tenant prospects, unlike buyers of homes, have a very short-sighted mindset. This concept means that when a buyer is looking to purchase a home, it’s not unrealistic for them to take months or even years to buy one. However, resident prospects will not take months, much less a year, to find a place.Tenants tend to have three or four characteristics they are looking for in a home. They will settle on the first one in their budget that checks all those boxes, typically for fear of someone else renting the house.As such, resident prospects will compare your home to what is available in that time window. Therefore, the most critical data you can determine is an accurate measurement of the homes you compete against. When you figure out the market rate, the question, “how much should I rent my house for?” becomes easier to answer.Now, let’s look at some techniques to find the market rate.
Zillow and Trulia
Formerly two companies, these two joined forces in recent years. They take local real estate data and extrapolate certain assumptions if you are unfamiliar with them. These include the value of homes, the future value of homes, and the market rental rate of the house.Not only is it helpful to understand what properties are renting for in and around your area, but tenant prospects also look at these values. Homes that are too far below these values typically don’t get as many showings as homes with marketed rental rates that align with Zillow or Trulia’s values. The good news is that using Zillow or Trulia is simple. Type your address in the box after choosing “Rent.” Once you click “Search,” you’ll see your property, and off to the right will be some nearby properties for rent. You’ll need to determine if they are comparable properties in a different type of neighborhood or if the house is different.
Local Property Managers
Search the available homes on local property managers’ websites to determine if they have any nearby. Doing this can determine what the professionals think homes are worth in that area. You can also look at the pictures on their site to determine if the houses have similar features and amenities.When you pull up all of the listings on a local property manager’s site, you can filter several ways to see any houses we have in your general area. You could then pull up the map view and see if there’s anything close to your home.Once you find a similar house, scan through the pictures. Based on the 50 photos, you can determine if this house is similar to the one you’re trying to rent. Some local property managers even have software to pull up comparables for you.
Your Neighborhood
Local, on-the-ground knowledge of what homes have been rented for in your neighborhood is an excellent way to determine how much to charge for rent.Is there a house near you that you know has been rented recently? Can you ask them how much they rented their house for? This “boots on the ground” data is beneficial when determining how much your home will rent for.What homes are currently available for rent in your neighborhood? Drive your area, look for “For Rent” signs, and call to inquire. When you do this, you can ask questions to gauge if the house for rent is similar to your home. It’s always good to do a little competitive analysis as well.
Secret Resident Shopper
One of the best ways to determine how much to charge for rent is to pretend you are a resident looking in your area.Much like a resident would, determine a budget and find out what you can rent in your neighborhood for that budget. In “tenant mode,” start comparing your house to the available options to determine which place you would rent for that budget.For example, what are your options if you have $1,500 a month and want to live in this neighborhood?Now, if you look at those houses that are better than yours, you know you need to price them lower than those. If your house is better than the available options, you’ll have two options.
Price It Along With the Others
If you do this, your property should be the next one that leases. This is a great option if you’re looking to rent your property as soon as possible.
Price It Slightly Higher than the Others
To do this, you’ll need to be willing to find a resident who wants to lease a nicer home in that area. It may take longer to lease than if you choose the first option, but you’ll make more rental income.
Free Rental Report
Another option is to have a rental analysis report done by a company in your market. Many property management companies offer this, or you can take our free rental assessment. We’ll send you a detailed report crafted by our experts, including a rental rate estimate and more.
Determine The Best Price Without The Emotion
Especially if the home has sentimental value to you (you’ve lived in the house for a significant amount of time, have made custom renovations to the home, etc.), it can be easy to think emotionally instead of objectively when deciding how much to charge for rent. But the truth is if you want to find that GREAT resident for your house, it’s best to take emotion out of it. Do your homework, strive for actual market rent, and be objective when deciding. Remember that your goal is to keep a resident long-term in your house. A long-term resident is as valuable an asset to you as the house they live in. It costs more money when short-term residents fill your properties and vacate after 12 monthsIf you want to learn more about setting expectations when pricing a rental, we suggest you read this article.>>
The Bottom Line
When facing the question, “how much should I rent my house for?” especially if you are new to being a landlord, determining the answer can feel overwhelming. It’s good to know that plenty of resources are available to help you choose the right price based on the property type, surrounding neighborhood, and market. The goal of setting the best price possible is to strike the balance between renting out your property as soon as possible while also setting you up for long-term success. At Evernest, we’re here to help in any way we can. If you’re looking for a place to start when renting a property, you can download our ultimate guide to renting your house in 2022. Here we break down what it takes to place the best resident possible and keep them for years to come, navigate marketing and lease agreements, and more!
