Need help determining rent — Rent strategy

19 Replies

Im turning my existing home into a rental (closing on another home in Feb). I have a pretty good handle on what I should charge for rent, but some extra feedback would be great.

My neighborhood seems to be in fairly high demand for buyers and renters but there's currently only 1 house for rent. The one for rent happens to be my exact model and they're asking $1800/mo. Their house is fairly basic—carpet throughout, laminate floors/countertops, standard appliances. My house has hardwood floors, granite, stainless steel appliances, an upgraded master bath and some custom carpentry/wainscoting in the entry way hall and up the stairs.

There have been a couple recent comps at 1700/mo and 1850/mo (the latter being another model like mine with only upgraded floors). However, just this summer there were a few rentals that went for 1550 and others in the 1600 range. There's nothing for rent in the 1900-2400 range in my area as I'm just outside a very affluent city/school district.

So my question is, what do you think fair rent would be for my house compared to the other comps? I'd be fine with $1800/mo but would I be selling myself short? Should I start a little higher than the other property to see if I get any bites?

If it were you, what would you do? I'm a first time landlord with a lot of questions. Any helpful insights would be GREATLY appreciated!

Thanks!

Hi @Jordan Hamm !

Great question!

So, what I did recently was use a leasing agent for my property in Houston.  He suggested $2,300 for the rent.  Since I live in CA and invest in another state, I took his word for it and marketed it for $2300.

In 18 days, I got an offer for $2000. I would actually be fine with $2000 since I had my projections set for $1800 as a conservative worst case scenario.  At $1800, I would still make $400 a month so anything above that would be icing on the cake.

I countered back with $2150.  This is a negotiation and I didn't want to accept the first offer. The reason why is if I would accept the tenants first offer, they may think, "Shoot, I should have offered lower..."

Now, since I gave in a little, I showed them I was willing to negotiate but not giving in.  They would have to bend a little just as I did.  The tenant countered back with $2100 so I got them locked in for $2100 for 18 months instead of a 12 month lease.  I gave in a little, then they did, then I did, and we settled in the middle.  

All sides feel they got a good deal and they had buy in once they started negotiating with me. They had skin in the game because of the time, thought, desire to get the property for themselves.

It all worked out well and I am very blessed.

So, I suggest to start at the high end and work your way down. If you want to start at $2000, stay there for 2 weeks.  If you don't get any bites, lower it to $1900.  If none then, lower it to $1800.  

I hope it goes well!
Dustin

Wow! Congrats @Dustin Heiner ... 18 days sounds great.

That type of real world experience was exactly what I was looking for. Similar to your experience, I'd still CF at $1600 but just didn't want to sell myself short. I was thinking of starting at $1950 with hopes of getting $1850-1900. Hope there's a good tenant out there for me!

Thanks again!

Sure Jordan, I invest Struthers and Youngstown. I've been there for almost 10 years now. It's going well there. I also invest in Houston TX. PM me if you want to chat some more buddy.

Hi Jordan- Im actually a Realtor & Investor in Columbus. I've had a couple clients ask me about homes for rent in the Westerville area recently. Without knowing the exact location of your home I couldn't suggest an exact price to start the rental listing at, however there are VERY few listed currently so don't cut yourself short- even though it is winter there are people relocating to Columbus due to job transfers constantly. Let me know if I can be of any assistance.

I try high in the beginning. I quickly lower it if I have not been getting inquiries. I find it really depends on the area. I have not been getting negotiations per say but I have been getting people asking me to hold the house. I have also found that I will get 30 inquiries but $50 higher it is crickets!

I personally don't like vacancies so my goal is to get the highest price with the lease amount of vacancy.

@Jordan Hamm , you've received a lot of good advice but I feel obligated to provide one major caution and one minor correction.

@Dustin Heiner provided you with an approach that has a lot of merit based solely on business logic.  Unfortunately, business principles are not the only concern and the only basis upon which we can make our decisions as landlords.  Fair Housing Laws have to enter our decision making.  If you offer a property at a given price and then accept less without informing others who declined at the higher price you run some level of risk of an investigation if a person from a protected class was not given the same price accommodation.  The fine is around $10,000 per violation and it's an expensive charge to defend against.  Even if my concern is unjustified (I don't believe it is but I could be wrong) I urge you to speak with a landlord tenant attorney to find out the best way to handle the lowering of rental prices particularly if you declined someone based on a criteria the considers the rental price.

The minor correction: rentometer.com is definitely a worthwhile resource and was a good suggestion for you but it does not have "...all comps in the area." as @Kevin Noesner suggests.  It probably has a majority and it very well may have sufficient information and I certainly use it as one of my resources when I'm uncertain of rental rates in an area. 

Finally, there is a landlord meeting this evening (Thursday, Jan. 21st) at Tommy's Pizza on Dublin-Granville Road between Sawmill and Riverside.  It starts at 6:00 PM and runs till around 8:30 PM.  You can arrive at any time that's good for you.  It will probably be well attended, it will have a speaker dealing with pest control, and there will time for questions from the attendees.  My guess is that there is 50% chance someone in attendance will have specific knowledge of rental rates in parts of Westerville or know someone who can give you some insights or may have additional suggestions about how to zero in on the market rate.  Even if you get no additional insights on the rent issue, the meeting is a good networking and educational opportunity.  Some BP members attend the meeting.

Great info @Ed W. , something to keep in mind for sure. How often do you guys meet? I might be able to catch the next one.

And I appreciate you sharing your strategies as well @Elizabeth Ciolegrove. I think I'm going to list it today and we'll see what happens!

Wish me luck! This is my first foray into land lording... I feel like I've done a decent amount of research and should have all my ducks in a row. Now I just have to pull the trigger.

Fingers crossed :)

@Jordan Hamm The meetings are monthly with the February meeting scheduled at Tommy's Pizza on 161 for the same time on Thursday, the 25th.  The speaker will be Dana Rose, Administrator of the Columbus Division of Code Enforcement.

Originally posted by @Ed W. :

@Jordan Hamm The meetings are monthly with the February meeting scheduled at Tommy's Pizza on 161 for the same time on Thursday, the 25th.  The speaker will be Dana Rose, Administrator of the Columbus Division of Code Enforcement.

 Ed, had a great time at the last one. Unfortunately I was late last time and wasn't able to network. Would it be possible to break up into smaller groups for about 15 minutes as part of the meeting next time? I love the networking part of these meetings. I would just hope for a little more networking if possible.

@Robert Ellis About a dozen folks, myself included, were chatting/networking until around 10 PM but it seems like a reasonable thing to try on a more formal basis so we'll give it a whirl.  Thanks for the suggestion.

If you offer a property at a given price and then accept less without informing others who declined at the higher price you run some level of risk of an investigation if a person from a protected class was not given the same price accommodation.

Correct.

I would like to add a few points regarding rent-setting strategy:

1) Don't get greedy. The first time you post a new listing, there is a whirlwind of activity. Folks get email notifications of a new listing, it shoots to the top of every list, everyone sees this property that is the FRESH HOT NEW ****. Lots of calls and emails. So - don't get greedy! This is your one chance to lease the unit FAST. Set the rent at market rates or even a little under (see more on that below), capture the interest and get a lease signed. If you shoot for the moon and slowly lower the rent over many weeks, (relatively) nobody will even be looking at your stale listing by the time it's at a fair market value.

2) Tenant quality matters. Sometimes we have clients that seem to think setting the rent high will lead to better quality tenants, because only high-earners would be able to afford it. WRONG. Let me tell you something about quality tenants with steady incomes and respect for rental properties - they're a lot like you and I. In fact I'm sure many of you have rented in the past. In other words, they are SAVVY SHOPPERS. They are looking for a deal! They know what the market is, they know they have good credit and a steady income and will be an ideal tenant, and they are on the lookout for a great deal. So if you want to attract a tenant like yourself, you need to price your units at or slightly BELOW market rents. If you set the rent high, you're just going to get a bunch of un-qualified tenants with evictions who know they will need to pay a premium in order to find a place to live.

Lease on, BPers.

Hmmm... That first one is a very odd strategy. Setting a list price and then negotiating with renters. I don't see that at all. Then again, every area is different.

Here's the thing you risk by maximizing your rent though. Come summer are there going to be 2 or 3 homes in the 1500 to 1600 range? Just because your home has granite and nice finishes doesn't mean that people want to pay 200 to 300 a month more than that.

At some point. its simply a matter of a house being overrehabbed for the area.

If you are looking for a 1 year rental then there is nothing wrong with going after the max rent. But if you are looking at this as a long term rental, then trying to sit at the top of the market is going to end up costing you in the long run. 

People are human and if they can find a house for 100 to 200 less in the same area, they're going to move. And renters look at rents all the time. 

What is that turnover going to cost you? Lost rent from vacancy (1 or 2 months - and your vacancy will be higher if you're trying to get top dollar). Make ready costs (i.e. cleanup, touch up painting, minor repairs., etc). And your time - to do showings and lease up the house again.

It adds up quick, believe me.

I personally like the model where you are in the sweet spot of the rental prices. I'd rather have the nicer home that rents for somewhere between the middle and lower end of the market. Better tenant pool. Less turnover.

And turnover is the enemy when it comes to making money as a landlord.

I would be tickled pink if the existing rental is at 1800 and it has less of the upgrades than yours does. I'd price the rent at 1750 and get my house rented immediately.  And that also insures you against some of those homes that are renting out for 1600 price range. 1750 is a closer to 1600 to 1650 than 1750.

Gonna make a tenant think twice before putting in the effort to move.  To save 100/mo not so sure they'd move. To save 250/mo, I'm suggesting thats a big enough of incentive to get them to go......

One other question - how long has that 1800 rental been on the market? I'm in a couple of towns where some of these big operators are renting homes and they have some crazy high prices. Thats not really the market though so I don't base my pricing off listings - at least not theirs. Gotta be careful when there are so few listings.  Thats not necessarily the market. That may be the mistake by a misinformed landlord.

Definitely a bunch of things to consider. Its an art more than a science though.

So if you think you can get 1800/mo or 1850/mo, list it there and see what kind of traffic and applicant pool you get. If its not good, then cut the listing.  Keep in mind too though, its winter time. And its always extremely slow finding renters during this time of year. So just because you have low traffic right now doesn't mean you're overpriced. It could just be the time of year.

Again, its truly an art and not a science that you're dealing with here. Go with your gut because at least that way you won't have to second guess following anybody else's advice. :-)

As Mike H said there is more to it in regard to the final rental price you rent it for and your expectations.

As for your first question, yes simply put it for rent and set a price and see what happens, everytime we have a new property this is the process you can research and engineer and figure and figure and figure... but the reality is the rental price will have to do with what the market will pay for your unique property no matter what anything else is renting for around you.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you