While there is really no such thing as setting your rental rates wrong – so long as your properties are filled, your tenants are happy and you’re meeting the expenses and making the income you want – every real estate investor wants to set their rates “just right”.
Setting them too high can lead to more work, increasing the number of showings to find the right tenant and may lengthen your time between rentals. Setting them too low means you’ll be risking lost revenue. Needless to say, finding the sweet spot can be very beneficial to your business.
Three Factors
Before you set your base price, you’ll want to consider three of the key influencing factors on what you can comfortably charge for your property. These include other rentals, geography, and luxuries.
1. Other Rentals
While there are certainly ways to stand out within the rental community to justify higher rates than your competitors, your prices will always be influenced by what else is available in the community. It’s important to know what properties are currently being rented for, especially looking at ones similar in size, location and condition to your property. You’ll want to maintain awareness of the vacancy rates within your community, too.
Craigslist and newspaper ads are one source of information, as is networking with other landlords within your area.
2. Geography
Where a particular property is located is often overlooked by real estate investors with several properties. It can be tempting to lump all 3 bedroom properties at the same rate, but proximity to shopping malls, golf courses and other perceived location perks should be considered. Even $25 or $50 variances for such perks can add up over the course of a year.
3. Luxuries
It should go without saying that luxuries unique to your property will influence your pricing upwards. Whether it’s a swimming pool, new appliances or a provided lawn service, you won’t want to miss any opportunity to maximize your return.
Once you set your base price, note (or have your staff note) the quantity and type of inquiries that result. If calls are slow, you might want to respond with a lower rate in the next ad. A high volume of calls may mean that an increase for your next available unit is in order.
You’ll also want to keep a record of the number of showings and reactions to each property. A lot of showings without applications may indicate a rate change is in order, while a series of rentals being snapped up on the first viewing can be an indicator in the other direction.
