Last Updated: March 17, 2023
Are you an independent landlord looking to attract good tenants and make a profit? Determining a rental price that is competitive and profitable can be quite tricky, but establishing how much rent to charge is important to a landlord’s success.
In this guide, we resolve any doubts or questions about renting to a tenant. We’ll share tips on how to establish the right price and what affects how much a place costs.
Let’s get started!
How to Put a Home Up for Rent
Renting out a property instead of selling it can be a good decision. Finding a good tenant for your home can be difficult, so here are some things you should consider when putting up your residence:
Preparation and Repairs
To start the rental process, ensure that the property is safe and liveable. Replace or repair any malfunctioning items, amenities, electrical wiring, or appliances in your home. Performing small renovations, maintenance, and repairs will immediately make your property more desirable.
Before determining the rental pricing, make sure that your home is set up for a non-owner occupant; change your mortgage loan and insurance to accommodate a tenant, which will ensure you have good liability coverage for tenants.
Successful landlords set aside money for future repairs and maintenance. Unfortunately, you will be responsible for any wear and tear that happens to the house. The general rule of thumb is to save 10% of the property’s value per year to invest towards repairs, which should also be calculated into the monthly rent.
Determine a Rental Rate
The rent you charge should cover all your expenses, but if you want residents, you have to be careful not to overcharge. Landlords who are unsure how much to charge for rent should consider the following:
- Rental rates of properties in the same area
- Market research on local rental prices
- Overall property value
- Rentability of your property regarding amenities, flooring, number of bedrooms and bathrooms, available parking, and overall condition
- How pet-friendly the property is
Landlords who don’t live close to their properties should consider hiring a property manager to perform tasks like maintenance, emergency visits, or checkups. This is a great option for landlords who would like to be hands-off, as property managers can also assist in how to price rental property, especially if renters have extended contracts.
Leave the nitty-gritty to a property manager, like following up when the occupants become more like tenants, late rental payments, and common repairs. Just make sure you can afford their fees before hiring them!
Read Landlord-Tenant Law
It’s important to understand local rent control laws and what it means to rent out a property. Learn about tenant laws and pricing rental property by referring to the Federal Anti-Discrimination Law, Federal Housing Law, and the Fair Credit Reporting Act (FCRA). Keeping in line with the rules and regulations will give you the tools to do a background check on tenants and be fair when choosing prospective renters.
Determine Rental Policies and Create a Lease
A lease protects you and the tenant, so it’s vital when renting a property. Consider addressing the following in your lease:
- Any illegal behavior
- Consequences of breaking the lease
- Responsibilities of small repairs and maintenance
- Rent payments and their schedule
Have a lawyer look at the lease to ensure everything is covered as they are legally binding contracts. Consider what you’ll do if your tenant turns into a holdover; if you’re not sure what a holdover tenant is, look it up and make sure to include a clause about it!
Marketing Strategies to Find New Tenants
Searching for tenants is easy, but finding the right tenants is more difficult. Consider who your prospective renters are. Is the property suitable for families, young couples, or college students? Successful landlords consider the kind of renters they want in their homes. which also helps determine how much to charge for rent.
Taking on the wrong tenants might result in you having to learn how to evict tenants, especially if they’re disturbing the neighborhood or damaging your property. Finding the right type of tenant also ensures that you retain them at a higher percentage.
Luckily, you can devise a marketing strategy to identify the type of tenants most suitable for your property.
It’s important to make use of great tenant screening services to do a background check on potential renters. Tenants have to consent to be screened and must provide references, job history, emergency contact information, and the date of birth of all potential occupants.
Finding a suitable service will guide you through how to screen a tenant to verify information and flag past criminal history.
|DID YOU KNOW: 28% of SmartMove tenant screening applicants have a criminal charge on their record.|
How Much Rent to Charge
How much rent should a landlord charge be profitable and competitive? Consider the following:
Research the Local Rental Market
Higher valued properties will always rent out first, so research market prices for properties in the same area. Compare not only the average rent price, but also what the property’s value is regarding amenities, layout, and inclusions.
Seasonal demand has a great effect on rent prices. In the United States, rental property demand is highest during the spring and summer.
Many landlords use the 2% rule when asking, “How much should I rent my house for?” The rule establishes that monthly rent should be 1-2% of the home’s value. Although it’s a quick estimate, the 2% rule doesn’t substitute researching the local market and considering expenses like maintenance costs and repairs.
Local Rent Control Laws
Every area has rent control laws that set price limits for neighborhoods. Make sure you know what the price ceiling is to stay within the law and set a fair price.
Ultimately, you want your property to avoid any financial loss, so keep your future mortgage, maintenance, and repairs in mind. At the very least, the cost of renting out a house should break even or make a few hundred dollars in profit if you still have mortgage debt.
What Do You Offer Tenants?
You can’t demand competitive prices if you don’t offer a property with good value. What does your property have to offer tenants that your competitors don’t?
|DID YOU KNOW: The average monthly rent for a house in the United States varies from state to state, but it’s usually between $800 and $1,300. California has one of the highest monthly averages at $1,503 a month.|
|Landlords need to follow tenant and rent laws to rent out properties without discrimination|
|Tenants have to give consent to be background screened|
|When pricing rental property, consider expenses, local rent control laws, and jurisdictions, amenities available, local market value, competitors, and renting season|
|Create a rental lease with the help of a lawyer to protect yourself and the tenant|
|A grassy lawn, accessible parking, larger square footage, and good security can positively affect your rental price|
Other Things That Affect Prices
If you are looking for guidelines on how to price rental property, consider other factors that can affect the price like:
Working professionals and families look at convenience and lifestyle when choosing a rental home. Properties close to major business areas, highways, schools, shopping centers, and public transport spots are valued higher than more remote properties.
Is the home freestanding or in a secure complex? Does it have an already-installed alarm system or a closed-off street with a 24-hour guard? People will usually pay more if they know that their family and belongings are safe and secure.
Look at parking available for tenants and their guests when you determine rental pricing. If your property has covered parking or a garage, it is more valuable than one without any parking spots.
A nice outside area or grassy lawn is more desirable and can result in a higher monthly rent.
A lot of landlords don’t have pet-friendly properties which can quickly make them less desirable. Being pet-friendly can add value to the cost of renting out a house.
Landlords can demand a higher rental rate if the size of the home is bigger than those in the area. More bedrooms, bathrooms, and larger square footage equal higher value.
|DID YOU KNOW? The most common types of rental properties are single-family home units and traditional apartments.|
Landlords must consider numerous factors before setting a rental price, like looking at property value, home market value, and competition. Setting up a good asking price and screening potential tenants will ensure that you make a rental profit. Follow our tips on how to determine rent price to ensure your asking price is fair and within all jurisdictions.
The best way to determine a room’s rent is to base it on the square footage they’ll occupy. A simple calculation would be the monthly property rent divided by the total square feet (personal space and shared space) divided by the number of sharers.
When calculating how much rent to charge, consider your expenses, property value, and market value. Most landlords charge 1-2% of the home’s value.
This depends on a few factors, including your monthly mortgage on the property and other expenses like insurance and upkeep. As long as the rent covers all expenses monthly, you’ll break even.