How Much You Should Charge for Rent

Cody Cromwell
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How to Calculate Your Rental Price

In most cases, landlords want to charge a fair, yet competitive price based on the value of the property and the number of potential renters who could potentially occupy the home. Yet, it’s difficult to set a rental price without considering whether your rental property will be the most attractive for prospective tenants.

So how do you figure out the right rental price for your property?

If you own rental property in a high cost-of-living area, your rental price should be higher.

Or, if you have a comfortable tenant base, rental prices can be lowered slightly to attract new tenants to the property.

If your rental falls within the “grey area,” rent a few run-of-the-mill rental listings in your area to give you a better idea of how much your rental cost should be.

Step 1: Estimate the annual cost of living in your property.

To determine the annual cost of living, you’ll need to know a few things such as:

  • the number of bedrooms
  • the geographical location
  • the cost of utilities (such as electricity and gas)
  • whether there are any shared utilities (such as washing machine and pool)

Additional Ways to Set Your Rent Price

Look at Average Rents in the Area

Don’t forget that you need to charge enough to pay for your own expenses, including but not limited to:

  • Mobility device
  • Lighting
  • Location
  • Maintenance
  • Permits and licences
  • Cleaning
  • Insurance
  • Administration
  • Charges for access equipment
  • Licences and permits
  • Transportation
  • Computer and internet connection
  • Security
  • Building maintenance
  • New tools and equipment

What your market rent should be is a tricky question to answer, especially because the local market dynamics vary so much. You will need to weigh all your options.

A basic rule of thumb is to charge at or below the average of rents in similar businesses in the same area, but be sure to factor in the increased costs you will have for running this type of business.

Browse for new listings in the area you want to operate and that that fit your business plan. Analyze these listings to see what the rents are, and from there determine a fair market rent for your business.

Ask Three Local Real Estate Agents

{1}. Take the price of your home.
{2}. Subtract your home’s estimated fair market value.
{3}. Divide the remaining amount by the number of months you’re letting it.

Target a rate between 5 and 10 percent of this percentage.

Conduct an RMA

It’s no secret that today’s real estate market is one of the toughest to get into. And to top it off, prices are moving further and further away from anyone’s budget. This has led to an attitude shift – and a financial shift, as well. The younger generation simply is not interested in buying an apartment because of the prices. And for those who are, they find it impossible to buy without taking out an awful lot of debt. It’s a terrible predicament for everyone involved.

If you are thinking about buying a new property to rent out, you should conduct an RMA mortgage survey. That means you’re looking for people who are looking for a new place to live, and run a financial survey of their rental demands and budget. Should a market like this open up where you live, you can take full advantage of it. But your job as a landlord doesn’t end when you have a tenant. You have to work your property to keep it afloat in order to attract new tenants, and that’s exactly what this post is about.

Look at Vacation Rental Sites

Do not charge much more than the site charges you.

Another way to maintain your deposit is to have a lock on the front door. Most sites have locks on the front doors (reinforcement locks) even in the cheapest rentals. However if you are out of town renters having the locks on the door is not effective because your guests can easily get in. If your house is in a good neighborhood, you could ask your guests to park their cars somewhere else, so that there is no parking problem during your vacation. The good thing about this is that if something happens, you will know who the culprit is, so that you can file a police complaint, and make them responsible for all the damages they might have caused.

If you find yourself in a few states during your vacation, check the state laws to see which are the best days to move in and move out. We have found that if you have a lock and have a deposit with the states you are renting from, most likely you won’t be accused of any thing. If it is a state that you have to move out on a certain day, and you were not there on time, that state will also investigate and most likely fine you. You will be responsible for pay the fines and the state will account for the damages you have caused to the property.

Adjust Rental Amount Based on Amenities

Living in a major city, there are too many amenities to buy these days. Have you ever seen a list of amenities when buying a home?

For example, with townhouses, you may be able to get a washer and dryer and a garage. Or you may not have to buy a garage but get a garage with the townhouse.

With a condominium, you may get an extra lanai, and with apartment buildings and rentals, you may get to live in a nicer area.

Your apartment may be at the ocean or close to it. Or it may have a pool or other recreational facilities. With Rental apartment buildings, you may not have a lot of amenities, but you may have a garage.

It is up to you how much you can add to your rental agreement if the apartment or rental house does not have a garage and if you have to pay for one. It is all a matter of negotiation.

But if you are renting something that is priced extremely low in comparison with what is available, you should probably charge more for your rent.

For example, if your apartment is on the 17th floor of an apartment building and there are only stairs to the apartment, there is not a gym down the hall, and you have to take the elevator to get to the pool, do you really need to pay less rent?

Why Setting the Right Rent Price Is Important

How much should you charge for rent? If tenants choose your rental property because of the price, they´re unlikely to be satisfied with the experience. On the other hand, if your rental price attracts the perfect tenants and they stay happy in the property for the duration of the lease, the rent price calculation is a vital factor in creating a successful rental investment.

Setting the right rent price prospectively is vital: setting a rental price too low or too high may compromise your financial investment in a house. If you set a rent price that you can’t afford and/or a rent price that won’t attract tenants, you could be setting yourself up for failure.

A formal lease agreement backs up the agreed rent price for a property, allowing you to assess the most efficient way to use your rental income.

The best way to understand setting the right rental price is to follow the graph below:

Types of Rent Price Calculation

When a tenant decides to move into a house that is currently unrented, a rent price calculation takes place. The rent price that is agreed will become a rent after a tenant moves into the property.

The two most common methods for determining rent prices are based on a formula and an agreement.

Frequently Asked Questions (FAQs)

What should my rental or lease rate be for a rental property?

There are four main things that need to be considered when setting a rental or lease rate. They are:

The potential profits: There are two values that are often used to help determine the potential profits that can be made on a rental property: the gross rental income and the net rental income. Gross rental income is the total amount of money that is earned from the rental property, after all expenses are subtracted from the total income. Net rental income is a dollar amount equal to the gross rental income where expenses have been deducted from the income.

The property’s operating expenses: These are expenses (destroying the property) that are incurred on a daily or weekly basis, and they’re required to run a rental property. These include maintenance expenses (things like lawn care, pest control, etc.), property taxes, utilities (water, electricity, gas), and management costs.

How much should I charge for rent for a room?

Asking "How Much Should I Charge for Rent" is a popular question. If you are asking yourself this question you are probably renting out an extra room. This question should be answered based on the area, the room, and the person asking.

If you are renting in a city where a large number of people work, you should go for a higher rent, as there are more likely to be tenants who are either students or just starting a new job. On the other hand, if you are in a small town or suburb, it is better to charge a lower rent since few people work there and as such you will be catering to tenants who are from the place where you are and are either upper or middle class. In this case, you would have to try and make up the difference in your income by lowering the charges for utilities (like water and electricity).

When answering how much should I charge for rent, you should also do some research on the average incomes that are charged. It is after all, your business and you have to take into account what you can actually earn out of it.

Always do your best to be fair and honest as far as pricing is concerned. There is no point in lowering the charges just because you won’t be able to make up the difference. If your business is to make a profit, you have to make sure that you do make a profit.

How much does it cost to rent your home through a property manager?

How much should you charge for rent? When it comes to setting the price of your home, there’s no cut and dry answer because every situation…

Is different.

The first thing you’ll need to do is set a rate that makes sense for you, your home and your market. The higher your rate, the fewer potential tenants you’ll attract. And if your property is spread over a larger number of cities or neighborhoods, you’ll probably want to charge more.

Some people opt for a flat rent rate across all cities or neighborhoods. While this may be cheaper in the short run, you’ll lose money because you’ll be paying more in fees (like mortgage insurance and taxes) for every tenant. In addition, having one set rate across all locations can hurt your chances of attracting tenants who are looking specifically for your property. Often these tenants can pay more for your home than people who live in a neighborhood where you’re rent is lower. So if you have multiple locations, the better option is to have different rates for each.

How much of your income should go toward rent?

One of the first concerns anyone faces when renting is how much of their income should go toward rent. In many cases, this is a hard question to answer, because you’ll need to weigh different factors against each other.

Some of the benefits of renting include the potential to save money and pay down debts. But in order to do that, you’ll need to be able to afford housing costs and to have other resources available in case of an emergency or a major life event (e.g., if you’re a recent college grad who plans to save money for a down payment on a home). Also, if you want flexibility, you should be aware that your housing costs, at least in the short term, aren’t going to disappear.

Here are a few other considerations to consider:

  • Your plan to save for a down payment on a home, or a specific amount you’d like to save every month, and your likelihood of being able to do so.
  • Your willingness to spend on a landlord or agent’s service (i.e., the expense of a maintenance/cleaning service).

What’s the national average rent in the United States?

Let’s face it … renting can be a pain these days, especially when you’re constantly having to have multiple conversations with your landlord about something like how the rooms are being cleaned or how often you should expect to be pestered by your neighbors. But if you’re a landlord for a residential property, your rent isn’t exactly free money either. If you are not operating the rental properly, you could end up facing some serious financial consequences. So how much should you charge your tenants for rent?

Of course, you don’t want to be in danger of running out of money, but you should also keep in mind that after paying your landlords a reasonable fee for the upkeep, it just may be in your best interest to accept a lower overall rent for your property.

How much does it cost to rent an apartment?

You’re about to start renting an apartment, and your next-door neighbor has already become your best friend. They are very generous and offer to help you move in, even though they have no place to move in themselves! Even though you aren’t really prepared, they insist. They have loads of boxes and furniture that they’d love to get rid of, and you don’t want to refuse such a generous offer. Usually, there are a few special conditions that come along, but you can keep them in mind as they are nicely attached to your new apartment, and you can’t leave yet!

What is the rent Zestimate on Zillow?

If you want to rent your apartment for the highest possible price, then knowing your apartment’s Zestimate is crucial. Whether it’s for showing the apartment to potential tenants, for negotiating a higher rent or for making improvements increase your return on investment, a Zestimate is essential.

If you’re a renter, it’s also important to know your fair market rent. If you want your apartment be rented at the highest price, knowing your Zestimate will help you understand whether the rent has increased enough to justify spending the extra money in new fixtures and furniture.

While Zillow’s Zestimate tool can be a good start in figuring out your apartment’s rent, it’s important to remember that these values are estimates and not exact. For example, when you enter the information about your apartment, you’ll see either an estimated rent or a minimum offer. However, your Zestimate is like your Zillow report, and it is not updated very frequently.

The Zestimate is also just a single item in a long list of estimated rental values, so your rental price changes based on many other factors including A) how close the rental property is to the rail line that service the neighborhood and B) the history of vacancies nearby.

Bottom Line

If you charge too much, you will be unable to attract new tenants and could potentially face penalties. If you charge too little, your rent will be below market rates, and you will have to dip into your reserves to cover these deficiencies.

Interestingly enough, your actual rent can be higher or lower than the prescribed amount, if you take advantage of all the allowances and undercharges allowed by law.

The worst thing to do if your tenant leaves without paying is to file suit against them. Don’t do it. You will have to provide evidence that you have spent a significant amount of time and personal effort on the matter. And even then, you will have to win before you get anything (except bad publicity). So don’t file suit.

Instead, try to recruit the tenant to sign up for a program that pays them to stay in your property. However, be sure to tout this option on the lease if you want to offer it. If you do, be sure to explain how it works and how long it takes to get reimbursed.

In any situation, whether you have a good tenant or not, always set a 30 day notice. This gives you time to find a new tenant, rather than having the landlord’s position cut short. And it also gives you time to contemplate whether your rent is set too high.