No matter how many sizzle features your rental property has, it will remain vacant if the rent price isn’t right. That’s why learning how to determine rental price is a crucial skill for real estate investors. After all, the factors that influence rental prices are constantly changing.
From housing laws to new construction, there are a number of factors that can impact average rental prices. Investors also need to pay close attention to location, property size, and surrounding properties to ensure they get it right. Learn more about each of these variables below, and make sure your property is priced to rent.
To learn how to price your rental property, you first need to understand how to analyze your market. This will involve researching local housing laws and pulling data on comparable properties. Investors can rely on the internet, local county officials and various network connections for this information. This data will help determine what to look for when it’s time to evaluate your own property. The process is not difficult, but it should be completed with a strong attention to detail. After all, determining rental price is a crucial step to securing cash flow.
Look Up Rent Price Laws in Your City
Laws regulating rental prices will vary by locale, and they can govern anything from rental increases to acceptable security deposits. To ensure you abide by these laws when determining rental prices, start by doing online research. Consult local government websites and determine what, if any, regulations are in place in your area. There are also resources that compile state and local information in one place, like landlordology.com. Rely on these websites for initial research, but always double check with an official government source.
Keep an eye out for rent control laws as you research housing regulations in your area. Rent control essentially limits the total amount landlords are able to charge for rent. It is important to know what this cap is when setting an initial rent price, as it may influence your ability to increase the rent later on. Rent control laws typically imposed on high cost areas and major cities, though it is still important to review the law regardless of where your property is located.
Compare Rental Prices in Your Area
A thorough market analysis is crucial when learning how to figure rental rate. This means taking a closer look at the area in which your rental property is located and pulling data on similar properties (also called comparables or comps). This is because no matter how many features a property offers, it will simply not be rented if it is dramatically above the average market prices. To avoid overpricing—or even under pricing—your rental unit, search for housing data in your area.
As you look into comparable properties, customize searches based on the features of the unit you will be renting out. Rely on websites like Zillow or Trulia, which pull listings straight from the MLS. Use these to research homes or apartments in a similar location that offer the same number of rooms and amenities. For example, if you are pricing a three bedroom single family home in a beach community, research other three bedroom homes that were built in the same year in the area. This will provide the most accurate picture of average rental prices similar to your unit. Be sure to take notes on each property, so you can refer back to them as you determine your final rental price.
Aside from online resources, real estate agents can also help identify comparable properties. They will have access directly to the MLS, and if you’re lucky, will be willing to help. Reach out to your investing network to find an investor-friendly agent you can provide their expert insight.
Determine Your Rental Price
Overall, learning how to price a rental property comes down to thorough research. Investors and landlords should take special care to cite housing laws and regulations. These will serve as a reference point to look back on when setting a final price. Further, look at demand in your real estate market. Are there more people moving in or out of your neighborhood and surrounding areas? Investors operating in competitive areas may be able to charge increased prices, while those working with low demand may find themselves offering lower prices.
As you determine the final price, take a final note of what the property has to offer. How many rooms and bathrooms are there? What kind of added amenities does the complex have to offer? Depending on your area, there are a few features that could impact your potential rent price including: air conditioning, extra storage, and the potential for allowing pets. Consider the value of these amenities as you determine your final renting price. While they may not take your property above market value, they could mean the difference in some additional rental income each month.
The right rental price is crucial to the success of any passive income property. If it’s too high, investors may not be able to fill the property; too low, and investors risk losing out on valuable cash flow. That’s why learning how to determine rental price is an invaluable skill, and one that investors will utilize time and time again. Review the above process to learn how to price your rental unit, and make sure your property doesn’t stay vacant for long.
Do you know how to determine the rental value of a house after reading this guide? Leave any final questions in the comments below.