You’re ready to rent out a property, but not sure how much to charge in rent? The good news is setting the perfect rent price isn’t difficult, this exercise simply requires you to consider all the important factors that influence rental prices to ensure you’re not charging too little or too high.
Crafting the perfect rent price requires more than basing it on a percentage of your property’s market value. You’ll need to consider additional factors, such as local rental demand, your monthly operating expenses, and more. In your rent price, account for the following:
As a landlord, you will have operating expenses you’ll need to cover each month, such as a mortgage, property taxes, insurance premiums, Homeowners Association (HOA) fees if applicable, utilities, maintenance, and other related fees. The most common fees to expect are:
Ideally, the total sum of your monthly operating expenses should be covered by your rent price to avoid paying out of pocket. So as the first step, determine how much you’ll need in rent payments to break-even each month. That number can then serve as your baseline or minimum rent price that you’re willing to charge.
Like many industries, the rental market experiences highs and lows in demand, which ultimately influence rental prices. During the summer months (May, June, July), often referred to as peak rental season, there’s a higher demand for available units since most renters are moving out of their current homes. This then results in landlords charging higher prices than they would during the slower months (December, January, February). The slower months typically fall during the winter season where there’s a smaller pool of renters, which typically forces landlords to charge more affordable rents to avoid long vacancy periods.
With this in mind, if you’re putting a property up for rent during May, June, July, then you’re in a great spot to charge a profitable rent price. On the other hand, if you’re doing this during the slower months, then you’ll most likely need to offer a lower rent price to generate interest from prospective renters.
The best way to understand your property’s local market is to compile rental comparables, often referred to as rental comps. Doing so will help you understand how much other landlords are charging for similar rentals based on location, square footage, beds, baths, and building type.
To source rental comps, you can manually search rental listings near you for properties like yours or purchase an Avail Rent Analysis report that provides information on rental demand, rental comps, and rent trends.
The six-page report provides you with the information you need to better understand the local market and get a general idea on how much to charge for your rental. To purchase a report, you’ll need to create a free Avail account and add information on your property. The information in the report will be based on the location of your rental.
While it’s best to look at local rental trends, it also helps to know how prices are trending overall across the country. You can then understand if average rent prices have been going up or down based on economic factors. For example, the June 2024 Realtor.com® Rental Report notes the 11th year-over-year decline in rent prices for studio to two bedroom properties since the trend began in 2020. The median rent across all size categories experienced declines when compared to the previous year — studio: $1,463, down $18 (-1.2%); 1-bed: $1,618, down $18 (-1.1%); 2-bed: $1,939, down $6 (-0.3%).
However, that doesn’t mean all markets are down. In fact, the Midwest is experiencing overall rent growth, such as the markets like Indianapolis, IN (+4.4%), Milwaukee, WI (+3.7%), and Minneapolis, MN (+3.7%). So if your rental property is located in these areas, you can better understand how rental prices are trending overall.
It’s one thing for your rental to be in an in-demand neighborhood, but even more important if it’s close to high-traffic areas. For example, if your property is located near popular grocery stores, community parks, and public transportation, then you’re more than likely able to charge more than a property farther away from them since it offers convenience to your renter.
You can also consider the local noise level and traffic trends, as this can make or break a person’s decision to rent your property.
Calculating your property’s rent price requires you to consider multiple factors to find a healthy balance of profitability and affordability. To help you make an informed decision on your rent price, invest in an Avail Rent Price report for a one-time fee. You can use the six-page report to have a great understanding on how much other landlords are charging and what your local demand looks like.
Create an account for free today.