How do I figure out the best rental price for a unit?

General Landlording & Rental Properties
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How do I figure out the best rental price for a unit?

Felix Sharpe
Attorney · Louisville, KY · Member since 2015 · 46 posts · 4 votes

Hello all,

My question is simple - what methods should I use to determine the best price point for a unit? I've researched apartments.com and have called area apartments to determine rate ranges. Just wondering if there is anything else I should do. This is my first property and the first time I'm attempting to price a unit.

Thanks,

Felix

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Dana Dunford
San Francisco, CA · Member since 2016 · 238 posts · 204 votes
10y

@Felix Sharpe-- Here is my strategy ... a combination of the below approaches:

(1) Market Approach: Review rental prices of comparable properties currently listed on the market. (Craigslist, Zillow, etc.)

(2) Growth Approach: For properties rented historically, use the initial rental rate and apply your county's annual growth rate.

(3) Data-driven Approach: Online tools, such as the Rent Zestimate, use large amounts of data to determine price. These tools are not always accurate, but they provide a baseline to compare with the other two approaches.

If you have too many candidates, then you are pricing your property too low. If you have too few candidates, then you may be pricing your property too high (may because some people don’t properly advertise their property.) 

Also, it's easier to list your property above market rate and reduce the price than it is to increase an underpriced unit.

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    10y

    If you are familiar with your market, you should have a good idea what range your unit should rent within; let's say $300-$1200 is the range of apartment rentals based on area, amenities, size, etc. Now figure out where your unit falls in that range. Is it a 1br in a rough part of town? Probably near the low end. Is it a 3br 2ba with a pool, gym, dedicated parking, and 5 minutes from the arts district? Probably near the top.

    There's no exact science to figuring out what to charge. The market is whatever you can find someone to rent the unit for. Your aim is to overlap your offering with the purchasing pool's wish list, such that there is great demand for your unit, thus giving you a better shot of always staying rented at a good price. If the largest renting pool in your area wants a 2br, 2ba apartment for less than $1,000, and you have a 3br, 2ba that you put up for rent at $995, you will probably rent in no time, or if you have a 2br, 1ba that you need to get $1100 for in order to make it cash flow, you will be searching through a small pool. 

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  • Franklin Romine
    Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
    10y

    I like the idea of having prospects bid on a unit to determine the monthly rent rate....


    Franklin

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  • Carol Venolia
    Flipper/Rehabber · Monterey, CA · Member since 2014 · 193 posts · 117 votes
    10y

    I've used rentometer.com (not highly accurate), craigslist, and just googling (for example) 2-bedroom rental, Town, State. I've also asked people like my handyman and other workers who visit the property how much they think I should charge for a place. In one case, my handyman said, "Oh, you can get a lot more than that average you got online!" I kicked the price up about $40 a month, and still had multiple qualified applicants.

    1Reply
  • Hubert Washington
    Investor · Jacksonville, FL · Member since 2016 · 97 posts · 90 votes
    10y

    @Franklin Rominecan you elaborate? Is this something you currently do?

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  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    10y

    Before you purchase a rental unit, you should already have a good idea of what the market rent in the area is, or it would be very difficult to determine if it's a good deal for a rental property.  I stay on top of my target areas, looking at rentometer.com, zillow, craigslist, redfin, etc., anywhere online that I can see current rentals.  If there is a rent sign in the neighborhood that doesn't have info online, I call and ask details.  I probably look at least once every month or so at what nearby rentals are currently listed for just to keep an eye on the trend.   Then, if my unit is in better shape, newly renovated, I start at the high end.  If it doesn't rate as well as the units nearby and I don't want to upgrade yet, I advertise the lower end of the scale.  There are usually many times when there are no new listings in my area, so random checking throughout the year tends to give me better overall data than just waiting until it's coming vacant.  

    1Reply
  • Dana Dunford
    San Francisco, CA · Member since 2016 · 238 posts · 204 votes
    10y

    @Felix Sharpe-- Here is my strategy ... a combination of the below approaches:

    (1) Market Approach: Review rental prices of comparable properties currently listed on the market. (Craigslist, Zillow, etc.)

    (2) Growth Approach: For properties rented historically, use the initial rental rate and apply your county's annual growth rate.

    (3) Data-driven Approach: Online tools, such as the Rent Zestimate, use large amounts of data to determine price. These tools are not always accurate, but they provide a baseline to compare with the other two approaches.

    If you have too many candidates, then you are pricing your property too low. If you have too few candidates, then you may be pricing your property too high (may because some people don’t properly advertise their property.) 

    Also, it's easier to list your property above market rate and reduce the price than it is to increase an underpriced unit.

    2Reply
  • Jeff Gates
    Investor · Cathedral City, CA · Member since 2014 · 481 posts · 170 votes
    10y

    When your too high nobody applies. When your too low many folks apply. Pretty simple. 

    0Reply
  • Ryder Meehan
    Investor · San Francisco, CA · Member since 2015 · 201 posts · 95 votes
    10y
    Dana Hoffmann pretty much covered it. One tip I would add is to only use a 6 month lease terms unless your market is stagnant or your property class is poor so a the turn over would be very expensive. In downtown Dallas I own a 4plex that the seller had just signed a 2 year lease on one of the units before I bought. Now every other unit rents at $895 and that one is stuck another year at $620. Even now the market is over $950 just in the last 6 months!
    1Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y
    Originally posted by @Jeff Gates:

    When your too high nobody applies. When your too low many folks apply. Pretty simple. 

    @Dana Hoffman: IMO, you over look/ignore that rental availability is down.  A momentary 'flush' of applications does not indicate you should immediately raise your rents.  Doing so can easily provide tenants to move as soon as they find 'cheaper' housing, and thus drive up your costs.

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  • Mark Allen
    Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
    10y
    Rentometer.com is a good resource. I agree with everyone's feedback.
    0Reply
  • Dana Dunford
    San Francisco, CA · Member since 2016 · 238 posts · 204 votes
    10y

    @Jeff B.- can you explain in more detail? I get numbers for all 3 approaches but weigh one or two of the approaches more heavily based on the circumstances and what makes sense. 

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    I'm HOT for tenant stability (absentee LL) and disdain move-outs, so I intentionally set rents slightly below FMR. This creates a situation where it would normally cost the tenant to move for trivial reasons and encourages them to stay - - appears to work for me, my last move-out had tenure for 8 yrs.

    1Reply
  • Ryder Meehan
    Investor · San Francisco, CA · Member since 2015 · 201 posts · 95 votes
    10y

    @Jeff B.Agree that move-outs are expensive to turn over the unit and create work for an otherwise passive REI. Do you increase your rental rate to market rate when renewing a lease?

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    Yes and no. If increases are necessary, then this is the time to do so, but I still keep mine < FMR for the above reasoning.

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