How to Set the Right Rental Price for Your Investment
Choosing the right rental price for your investment property can be tricky. After all, if you set it too high, you may struggle to find a tenant for your property. On the other hand, if you set it too low, you will be missing out on the full potential income that can be gained from the property. Therefore, in order to set the right rental price for your investment, there are a number of different factors that you should take into consideration.
Set a Base Price Based on Property Value
The value of the property is one of the first factors you should consider when determining the rental price. Keep in mind that the value is not necessarily the same as the price that was paid for the property. To determine the actual value of the property, you should conduct a real estate market analysis that will consider factors such as location, condition, age, improvements, features, amenities and size of the property.
Once you know the value of the property, you can calculate a base rent price by multiplying the value times a range of 0.8 to 1.1 percent. As a general rule of thumb, cheaper properties valued at $100,000 or less should be calculated near the 1 to 1.1 percent area, while more expensive properties valued at $350,000 or more should be calculated closer to the 0.8 percent mark.
Now that you have a base price for your rent, you need to consider whether or not you will include utilities in your rental agreement. If so, these add-ons will increase the amount of rent that you can demand for your property. If you do choose to include utilities, look at past utility bills to get an idea of how much you can expect the utilities to cost. Use this as a guideline to determine how much more should be added to your rental fee. To help protect your financial situation, be sure to include how these utilities are to be used in your rental agreement.
Do Some Comparison Shopping
Certain amenities and special features may also be used to justify an increase in rent. If your unit has a great view, enhanced appliances or rooms that are more spacious than nearby rentals, you may be able to command a higher rental fee. If you have all-new appliances in your rental or if you have recently refurbished the bathroom or kitchen, for example, you may be able to justify a slight increase above your base rental fee.
Play Into Seasonal Demands
It is no secret that demand fluctuates within the rental market. Therefore, if you place your property on the market during a time of the year when demand is high, you will be able to ask demand higher rent. Generally speaking, demand for rental properties peaks during the summer because school is out and because it is easier to move during the summer months. Therefore, putting your rental on the market during the summer may help you with increasing the amount of rent that you require.