How Much Rent Can I Charge?
As Much As You Want — Unless You Want Actual Tenants.
One of the more challenging parts of managing rental properties is deciding where to set your rental amounts. Charge too much, and you’ll have unwanted vacancies. Charge too little, and you’re leaving money on the table and potentially inviting a lower class of tenant that may not properly care for your property.
Fortunately, enough people have faced this dilemma in the past that there are some decent, proven methods of determining what your rent should be.
When you get right down to it, the amount of rent you want to charge is “the highest amount that will keep your rental unit full” — but that’s not an easy number to discern.
Fair Market Rent
Fair Market Rent (henceforth FMR) is simply “the amount being charged for similar properties in the same area”. In order to determine the FMR, you’re going to have to do quite a bit of research. First, you’re going to need to find similar rental properties in the same or demographically similar areas. Then, you’re going to need to make sure that at least the following attributes of your property and the properties you’re comparing are similar:
- Number of Bedrooms
- Number of Bathrooms
- Square Footage
- Foundation Type
- Garage/Parking
Once you’ve found a few similar properties in similar neighborhoods, you can start your research. Your goal, as you might expect, is to find out what those landlords are charging for rent. Once you have enough representative samples, you’ll have a good idea of the rent you can swing for your vacant property.
Techniques for Building Your ‘FMR’ Database
Check the Competition Out Online
There are several resources you can access to get rental information on properties. Often they’ll be listed on CraigsList, ApartmentsForRent, Zillow, or similar resources, with the rent listed right there in black and white. If you can’t find a particular place online and you really think it’s highly relevant to your situation, you can call a real estate agent and see if you can get some ‘insider’ info on the property. You can also use this tool to get an idea of what the HUD Section-8 rents in your area are, which can at least give you a starting place for your deliberations.
Pretend To Be a Prospective Tenant
Probably the most straightforward way of getting rental information — call the landlords of similar properties and ask them – even set an appointment to view the inside of a rental in your area. Just don’t waste too much of their time or get drawn into filling out a lot of paperwork; if they’re not willing to disclose the rent without a fuss, move on. It’s not worth the hassle.
Talk to a Local Real Estate Agent
Agents make their living off of knowing what the optimal rent for a given property is. Not all agents deal with rentals, so look for one that has rental listings in your general area.
In the end, naturally, you are the final arbiter of how much rent you’re going to charge — but the market will determine whether your decision is going to leave your property vacant or full. The ideas above will usually get you to a solid number that might not be the “highest” possible rental price, but will be a number that nicely balances vacancy time versus rent income.
Comments (4)
Roy. I like what your doing. That's smart business.
James Wise, over 10 years ago
@Michael Sygit Another factor in setting rent is a phenomenon we experienced for the first time this year. We have several properties on the same street in the local universityville - between ourselves and one other landlord we control 50% of the rental properties. While we still need to set rents in the range dictated by the larger neighbourhood, we find our concentration on the one street, combined with offering a better product, puts us in a position as a bit of a market maker and allows us to command rent in the top-end for the larger neighbourhood.
Roy N., over 10 years ago
Hooray for Collusion! :) Seriously though is this street generally nicer and more desirable than most? Or is it mostly that you can somewhat artificially set higher rents since you control a large part of the inventory (especially if you get the other major landlord to do the same)?
Shaun Reilly, over 10 years ago
Shaun: I've been wary of potential for collusion -either overt or implicit. We have not had any rent related discussion with the other major landlord on the street, however, we watch what he is doing and I'm sure he does the same ... so the perception of collusion may already be there. The street is on the edge of "univeristyville" and, as such, is a little quieter than the ones close to campus, however it is also a slightly longer walk to campus in the winter ... so there is a bit of cancellation in the appeal/desirability. The condition of our properties (energy efficient, wired with CAT-5e, en-suite laundry, appliances <5yrs old) and our offering (Internet included, a single-pay Utilities Budget option) is as big a factor as the street itself. Two of our student houses will be coming vacant this summer and we already have applicants for September 2014. I do not believe we are setting artificially high rents. Our rents have not increased in three years, and are still within the range of the larger neighbourhood ... in fact, we are not at the top of this range (though we are close). What we have been able to do is resist downward pressure on our rent and vacancy as university enrolment declines. I would like to be able conclude the quality of our offering is behind the ability to hold our rents and occupancy, but this year I have been suspecting the size of our presence on the street is also a factor.
Roy N., over 10 years ago