New Landlords: Setting Expectations And Pricing for Your Rental

Let’s talk about your house.Specifically, let’s talk about your desire to start renting your house out.Here at Evernest, we help homeowners and (potential) landlords like you do this every day. We’ve developed quite the toolbox of helpful hints, quick fixes, best practices, and tried-and-true advice that will ensure the best possible experience for you.But before you go diving into the nitty-gritty of being a landlord, it’s really important to get two things right:

Set proper expectations for yourself and your property
Understand rent rates and pricing for your rental property

Let’s dive in!

Be Objective

The first step to renting your house and becoming a landlord isn’t as sexy as diving into the “how-to’s” of managing a rental property. It’s a little more abstract than that and takes some serious thinking. You must think through proper expectations and how to see your property/the market objectively. While that “objective” thing is easy for us property managers, for homeowners like you, it can be much more complicated than it sounds. But if you can be objective, you’ll have a much better experience renting your house.Here’s a hypothetical to help explain why this is. Let’s say you:

Live in the suburbs
In a nice neighborhood
You’ve lived there for ten years
Your house is a 3-bed, 2.5 bath
You have a fenced-in backyard
You cook out a lot during the summer
You have a highly rated school system
You’ve made special upgrades to the house and property
You want to rent your home because you think it would make a good investment

Can you sense the emotion already? There’s a lot of attachment to that house; it’s a home. It’s your home. Not to mention, the financial responsibility of said home is on you. And because of this, it’s much more valuable to you. This is where emotion quickly clouds our expectations and vision, especially in rental property investing. Here are a few ways to practice being more objective with your new rental:

1. Think long-term when it comes to what you’re hoping to accomplish when renting out your property.

How long will you have a resident? What is your investing strategy? Are you after cash flow or looking for appreciation? How long might you hold the property? These are all critical questions to ask when thinking about the end you have in mind.

2. You must have a process for setting goals.

Here is a framework you can use to set your investment goals starting today:

Get very realistic about your current situation by writing the facts down.
Write down the feelings that you have about those facts.
Make two lists: What are the stories you tell yourself and the patterns that are formed from those stories?
Last, write down what is working and not working in your life. This will ultimately lead to asking, “what do I want?” Think of this in 12-month windows.

“How much money do I have to invest?” or “Who do I need to know to be successful?” or “How much time do I really have to find deals, make offers, and manage rentals?” You must be brutally honest with yourself if your plan from takeaway #1 is going to work.

3. Don’t think of risk as something to avoid ENTIRELY; rather ask how you can mitigate risk.

If you’re new to investing, you must realize there is always going to be risk. It’s important to ask yourself, in light of your goals and long-term vision, “how much risk am I willing to take on?” From there you’ll realize that the amount of risk you assume can be mitigated greatly simply by proper planning and goal setting.Suggested Listening: Setting Your Investment GoalsThese three steps are essential to be objective and not subjective in your thinking and approach as a landlord. When you are able to see your situation clearly, ask the right questions, meet the right people, and start taking small actions — you’ll mitigate potential risk in a dramatic way.Let’s look at two landlords: The first is reactive and runs off their ego…The second is humble, realistic, and focused on the long term. In the end, investor #2 will always win. Why? Because they are focused on being as objective as possible with their rental property.

How Much Should I Charge In Rent?

Now that you’ve taken the time to start thinking clearly about your house as a rental property, let’s dive into the thing you got into this business for: rent (i.e. cash flow).The better question is, “How much can I charge in rent?”Marketing your home for rent starts with a comprehensive look at the market to understand what your home will realistically rent for to a well-qualified resident. There are two situations you want to avoid:

If the rent is too low, you won’t make as much money as you should.
If the rent is too high, it’ll take longer to lease (another money waster) and will likely be leased to the wrong person.

Finding the correct market rate is both an art and a science. While you’re working on finding the market rate of your home, keep in mind one essential truth: Prospective residents, unlike home buyers, are very shortsighted. When a buyer is looking to purchase a home, it’s not unusual for them to take months or even years to purchase one. Prospective residents are typically looking to move within a month or two. Residents tend to have just three or four characteristics they’re looking for in a home. They’ll settle on the first one in their budget that checks all those boxes – typically for fear of someone else renting the house first. Why is this important? Prospective residents will compare your home to what is available to them in their short window. Therefore, the most important data you can obtain is an accurate measurement of the rent value of those homes you are competing against. This brings us to finding the proper market rate for your rental property.Suggested Reading: How to Keep a Resident for 20 Years

Finding the Market Rate

Let’s look at some techniques you can use to find your property’s market rate:

Zillow and Trulia

These two websites, which are owned by the same company, take local real estate data and extrapolate certain assumptions such as,

Value of homes
Future value of homes
Market rental rate of homes

We routinely hear people snub their nose at the values these websites provide of their homes. They cite things like their inability to determine amenities or certain other unique characteristics their home has and to assign an appropriate value to them. While they are correct that it is hard for an algorithm to determine a perfectly accurate value, prospective residents are also looking at these values and finding them helpful. Homes that are too far out of line with these values typically don’t get as many showings as homes with marketed rental rates that are more in line with Zillow or Trulia’s values. To some degree, they’ve become a self-fulfilling prophecy – particularly in an age when data is so widespread and available to everyone.

Local Property Managers

Search the available homes on local property managers’ websites to determine if they have any nearby. By doing this, you may be able to determine what the professionals think homes in your area are worth. To make it simple, contact one of our local property managers to discuss this with you. >>

Your Neighborhood

Drive around and look for ‘For Rent’ signs, then call to inquire or go to one of the open houses, if they’re offered. When you do this, ask questions to gauge if the house for rent is similar to your house. It’s always good to do a little competitive analysis!

Free Rental Analysis Report

Want a comprehensive and analytical way of finding your property’s rent rate? We will actually put together a free rental report completely customized to your property. The report will give you a comprehensive breakdown of your property and tell you things like a rental estimate, benchmarks for your area, etc. Once you do that, you can take it a step further and speak with one of our local team members about the best direction moving forward. You can get a FREE rental report on your property here. >>

Putting It All Together

If you want to find that GREAT resident for your house, it’s best to take the emotion out of it, do your homework, and strive for true market rent. Great residents will be happy paying market rent, while bad residents may agree to pay “above” market rents just to get into your house. But there’s a good chance that you won’t get paid steadily... if at all... after about four months. It’s unfortunate but true. And we know from experience that a bad resident, or even an average resident, will end up costing you more in the long run than a great resident at the true market rate right now. Trust us on that one…After all, each time we were subjective rather than objective, it ended up costing us more money and more pain on the backend. The good news? You can avoid that misery before you even place a resident. If you’re looking for ways to stay connected or have questions, here are two opportunities to get engaged today:1. Download our Ultimate Guide to Renting Your House in 2022. In this guide, we unpack in more detail everything we discussed in this article…and much more! You can get your copy here. >>2. Speak with one of our local, market experts today. We get what it’s like to be the new kid on the block. Having guidance and someone you can lean on for insights and help to get started is huge. If interested, you can reach out to our team in your market today. >>