A successful investment property depends on a range of factors, but determining rental rates is one of the most important considerations you’ll face when it comes to profitability.
Setting a rental rate is a careful balance between generating a profitable income, maintaining a competitive price point, and attracting desirable tenants. In most rental markets, tenants have the opportunity to choose between several available properties, so setting an appropriate rental rate will have a direct impact on your ability to reduce vacancy rates and costs.
The most basic rule to follow is to choose a rental rate that is in line with comparable rental properties in your location. However, it is important to remember that not all properties are created equal. If your two-bedroom apartment is listed at a much higher monthly rent than the two-bedroom apartment across the hall, there needs to be a reason to persuade tenants that your unit is worth the higher cost. Does your unit have beautiful views? An included washer and dryer? Extra storage?
Related: The Top 7 Rental Amenities Quality Tenants Want
Here are several things to take into consideration that will affect your rental value and desirability.
8 Considerations When Determining Rental RatesWhere is it? Consider the walkability score of your rental property and the value it could provide to your tenants. Are you close to schools, shopping, restaurants, or public transportation? If so, you may have an opportunity to ask for a higher rent amount. You’ll also need to keep in mind the location, quality, and safety of the neighborhood or area in which your property is located. You could own a brand new, renovated rental property, but if it’s located in an undesirable neighborhood, it’s unlikely you will succeed with a higher than average rental rate. How big is it? The square footage of your property will be one of the top factors influencing your rental rate, similar to listing a home for sale. Tenants are going to consider the price per square foot to ensure the best bang for their buck. A property with a higher square footage is likely to be more desirable than a property with limited living space, even if both have the same number of bedrooms and bathrooms.What can you see? Take in the view from your rental property, and consider if tenants would find it desirable or not—especially if you are pricing units in a multi-unit property. Garden, city, or water views easily justify an increased rental rate. If your property has an alley view, looks directly into a neighbor’s property, or simply has no view at all, you might consider adjusting the rent appropriately.How much can you store? Amenities like extra closets, kitchen cabinets, garages, or sheds all raise the appeal and value of a rental property. If you have the option, consider offering some sort of storage opportunity to your tenants for an extra monthly fee.
What’s included when it comes to appliances? Almost across the board, properties that include an in-unit washer and dryer will have a higher monthly rent. Other desirable appliances include a dishwasher, garbage disposal, microwave, and central air. If your property requires tenants to secure their own refrigerator, stove, or other appliance, consider setting rent at a lower rate. Is it up-to-date? Updated touches are the main factor that will set your rental property apart from comparable properties in the area. Fresh paint (interior and exterior), new flooring, modern appliances, and updated light fixtures will all make your property stand out from the competition and support a higher rental rate. What’s included when it comes to utilities? You do need to keep affiliated utilities in mind when setting your rental rates. If tenants will be on their own for all of their monthly bills, reflect this in your rent price. If you’ll pick up a few or all of the utilities every month, this should also be reflected in your monthly rate. Some tenants will prefer the ease of paying one bill every month with utilities included, even if it means paying more.How many “extras” do you offer? Amenities are truly what sets your property apart from others on the market. Offering things like internet or cable included in rent is a great way to attract tenants and potentially raise your rental rate. Other amenities tenants are willing to pay more for include fitness centers, pools, shared common areas, and outdoor features like barbecue areas or rooftop decks.
Related: 6 Insider Tips to Fill Rental Vacancies
There are many factors that will play a role in determining a fair rent price for your rental properties, and you’ll have to spend time doing some research and evaluation. At the end of the day, features that make your property more desirable than the competition justify your ability to ask for a higher monthly rent.
Beyond your profitability and income, understanding fair market rent for your location will give you reasonable expectations and help you reduce rental vacancies.
Are there any other factors not included above that you consider or have been advised to consider when setting rental rates?
Add them in the comment section below!