DETERMINING RENTAL RATE

There are many factors to consider when determining a rental rate.  You want to make sure you don’t charge too much or you’re likely to be sitting with vacant units.  And on the flip side if you charge too little, you’re leaving profits on the table.

MARKET RATE

To determine your rental rate you want to first look at Market Rent.  Market Rent is, simply, the going rate for rental properties in a specific area.

Some of the factors that can affect Market Rent are supply and demand.  Typically, if supply is low, the demand is high and conversely, if demand is low, the supply will be high.  In general, when demand is high we see the rental rate increase.  When the demand is low it may be worth considering lowering your rental rate in an effort to increase your return on investment (ROI).

The easiest way to determine Market Rent is to look at comparable properties.  The rate is not determined until a renter is willing to pay the rent asked.  A local property manger is a good source to help you determine the actual Market Rent for your area.

COMPARABLE HOMES

Looking at comparable homes currently for rent is also a great way to determine a rental rate. Be sure to look, if possible, how long the property has been on the market.  For example, if you are looking at a home in the low-end of the market that has been posted for rent for a while and demand is high, it is a reasonable conclusion that the rent may be too high.  If you are looking at the higher-end, you want to take note that these homes typically stay on the market for a little longer than the lower-end.  We will discuss this further below, but in both cases it is important to compare homes of similar size, amenities and area.

KNOWING YOUR RENTER POOL

When looking at comparables you want to consider your renter pool.  Typically you have a larger pool of renters in the lower and middle-end.  In the higher-end you have more people with income levels that allow them to buy a home so the pool is smaller.  This is called a stratified marketplace.  It is similar to what we see in the Real Estate market.   Keeping in mind people rent for many different reasons we see rentals in the high, middle and low end of the market.

 

If you have any questions or would like help pricing your rental please don’t hesitate to contact me.

 

Audrey Wardwell

Audrey@36northpm.com

831-320-7116

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