Landlording & Rental Properties

Is Your Rental Priced Too Low? 5 Ways to Figure Out How Much to Charge for Rent

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red for rent sign in front yard of home in nicely landscaped neighborhood

Is your rental unit priced too low?

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Most of you are property owners with a full-time job, so you don’t have time to pay attention to your rental property every day. Despite how busy you are, please don’t rely on your property manager completely. At the very least, you should study the market rent once a quarter.

Here are five effective ways to check if your rental unit is priced correctly.

How to Set the Right Rental Price for Your Property

  1. Rentometer

Annual cost is about $100.

This is an awesome website for rental comparison! You can compare by city or zip code. It gives you the 75th percentile and 90th percentile, so you can get a good estimate on the highest rent (price per square foot) and the lowest rent. Most likely, your property is going to fall somewhere in the 90th percentile.

This is a great place to start, so use it as a baseline. DON’T blindly rely on the data provided on Rentometer though, because you don’t know what those properties look like. Refine your data by implementing some of the strategies below.

Note: RentCafe also has free data, but it’s not as comprehensive and detailed as Rentometer.

  1. Occupancy Rate

What’s the average occupancy rate in the area? Is it 95 percent or 85 percent?

How’s your property’s occupancy rate compared to the region’s? You don’t want it to be higher or lower by too much.

If your occupancy rate is much higher than the regional average, then your rent is probably not aggressive enough. If it’s a lot lower, then your rent might be too high, or you might have a much bigger issue than just pricing.

Related: How to Best Gauge the Correct Rental Rates for Your Investment Properties

  1. Research Properties Online

This is a great way to find comparable properties. It’s also, in my opinion, the most effective and crucial step! You can do this research anywhere, get a decent rent estimate, and have a strong understanding of what your competition looks like.

Go on Apartments.com or Zillow, and find nearby properties that resemble yours. Pay attention to the year built, number of units, types of amenities, convenience, interior and exterior finishes, and inclusion or exclusion of a washer and dryer. It’s unlikely that you’ll find an exact match, but this is still enough to get a good estimate on the rent.

You should also figure out if the properties nearby are doing RUBS (Ratio Utility Billing System). If they are, then you should check with your property manager and try to implement RUBS, as well!

  1. Property Manager

Your property managers are great resources, but don’t rely on them completely. Ask them about the current market rents and for a market report.

For the report, they can give you a list of comparable properties with the current rents, which you can then verify yourself–either by researching online or visiting the properties in person.

Related: Why Landlords Can’t Afford Not to Raise the Rent

  1. Site Visit

Once you’ve found a couple properties nearby that are similar to yours, call or visit the property as a potential renter. Ask questions regarding the current rent, unit size, amenities, utility bill, and any special features. Preferably, you should visit the site to get a good feeling of the property overall.

This is a lot more time-consuming than step three, but you should do this at least once or twice a year. It’s your job as an investor to study the current local market, so that you can manage your current properties well and underwrite accurate pro forma for future acquisitions.

Do you have any other strategies for pricing rental units to add to the above list? 

Share them below in the comment section.

Jay, a civil engineering graduate from UCLA, is an active investor, developer, and writer. He is the President and Founder of Hestia Capital, which syndicates multifamily properties with value-add opportunities in Phoenix and Tucson. He is also working at CIM Group full-time as an Assistant Construction Manager/Analyst on the development team. His responsibilities include entitlements, cost management, and construction management for ground-up projects. Jay is also currently one of the leaders of a real estate investment group called the MultifamilyMasters.com, which grew to 1,000+ members within a year. Before working at CIM, Jay worked for Pankow Builders on large construction projects, such as the R3 Metropolis in DTLA and the EDITION Hotel in West Hollywood. Jay aspires to develop coliving projects in the future. When he has free time, he travels, plays basketball, snowboards, and golfs.

    Matt NA investor
    Replied 29 days ago
    Good post. I agree with points 2-5, However, I've found that data driven analytics, regarding real estate valuations and rent valuations, just can't compare to first hand knowledge of a market area. There's just too many nuances that are missed from computer programs. Looking at comparables on properties, streets, or areas that you recognize is the only way to go. I know of places where just two blocks apart will make a 30% difference in valuations. It's difficult for an analytic service to make those distinctions.
    Jay Chang developer from Los Angeles, CA
    Replied 28 days ago
    Awesome feedback. Definitely true. Don't rely too much on data. Site visit is time consuming, but it's the best way to get to know a market and the nearby properties!
    Daniel Gengaro from Bloomsbury, NJ
    Replied 28 days ago
    Two thumbs up!
    Lacey S. from Carrboro, North Carolina
    Replied 27 days ago
    How do you find out what your area vacancy rate is?
    Jay Chang developer from Los Angeles, CA
    Replied 26 days ago
    You can find the vacancy rate in most cities simply by googling, but you should verify with a couple other sources. RentCafe and huduser.gov are other great sources
    Dean Valenzuela
    Replied 27 days ago
    I agree with all the points. If your property manager is a member of the multiple listing service, they can add you to an automated property search for similar like properties and you will begin to receive real time data for active properties.
    Jay Chang developer from Los Angeles, CA
    Replied 26 days ago
    Great input. Thanks Dean!
    Alan DeRossett investor from Thousand Oaks, California
    Replied 27 days ago
    Good post logical Data-driven method, however, our properties and all properties in California are under a 5$ plus inflation rent control Now! even as our properties could stand an increase the State-controlled Rent limits are in place. We will make other Cuts in our marginal costs to reduce our operating expenses, by adding Solar and EV charging for tenets plus upgrade buildings with new alternative crowdfunding Capital to increase rents. We will be including the First $100 of electric free with a modest $75 rent increase. Solar ROI will take only 4.6 years in this way.
    Seth C. investor from Monterey, California
    Replied 26 days ago
    Alan, it is only 5% plus inflation until the tenant leaves voluntarily. On turnover you can do whatever you want unless you evict. But I agree with you given the financing and tax perks of solar, it is a fundamental capex project for almost any property.
    Brad Taylor from Chicago, IL
    Replied 27 days ago
    Please explain RUBS. Or point me to a blog here on it perhaps?
    Jay Chang developer from Los Angeles, CA
    Replied 26 days ago
    RUBS is simply billing the tenants for how much utility they used. You'll need to get a submeter for each utility, so you can measure how much of electricity, gas, and water each tenant is using. The cost of installing submeter depends on how your system is set up. You should talk to a submeter contractor to get a quote, but the cost is generally $200-$300/unit.
    Katie Rogers from Santa Barbara, California
    Replied 26 days ago
    If you start billing the tenants for utilities without reducing the rent, all you have done is stealthily increased the rent. The tenants will notice whether they complain or not. If their new cost exceeds what they would be paying elsewhere, you could lose the tenant. Another problem is even incremental rent increases in the absence of wage increases may make the rent considerably more than the one-third or less of their salary that it was when they first moved in. They may stay anyway if other landlords have followed suit because current landlords do not re-qualify tenants, and they can no longer qualify for another place. If the rent becomes unmanageable, they may face an eviction proceeding and you may create a so-called professional tenant because they need to postpone the inevitable as long as possible.
    Jay Chang developer from Los Angeles, CA
    Replied 25 days ago
    Great point Katie, thanks for pointing this out. This is why it's very important to check if other comparable properties nearby are doing RUBS. If they are, then you are losing potential rent by not doing so. If no one else is doing this, then your property will lose tenants!
    Joe Scaparra investor from Austin, TX
    Replied 27 days ago
    Ok, for most of us on this board that own rentals we are small frys compared to the corporate owners. That being said, maxing out rent may not be as important as minimizing vacancy. Rents are very subjective, and not that scientific. I have seen two duplexes side by side in fairly same shape and size could vary in rent by as much as $300 per month.. A lot can vary from the quality of tenant you accept, the time of year the property was rented, the owner (age, experience, financial well being), the goal of the owner, and the needs of the renter. I have 14 rentals in the Austin, area, my rents are $75-$100 below current market but my occupancy is 98%. Yeah rents are important, especially when deciding to buy the property as an investment. If maxing out your rent is important to you then concentrate on better marketing strategies. Improve your product, improve your exposure, and improve your customer service........that my friend is the formula for maximizing your rent! Cheers!
    Bill Brittain investor from Gilbert, Arizona
    Replied 27 days ago
    I have tennants who love my place because there is no RUBS. I'm not very famililar, but as i understand it, those who are repsonsible users of utilities subsidize (are penalized) the wasteful ones, i.e. tragedy of the commons.
    Katie Rogers from Santa Barbara, California
    Replied 24 days ago
    There is always the risk that responsible tenants end up subsidizing wasteful tenants.