Are You Charging a Fair Rental Rate?
One of the main factors to consider when buying real estate is the return on your investment property. If your rental rate is too high, it will be difficult to attract potential tenants and if it is too low, you won’t be able to maximize rental income to its full extent. It is important to strike a good balance between occupancy rates and profits, and always try to charge a fair rental rate for your property.
What Is a Fair Rental Rate?
Fair rental rate, also known as fair market rate, is the gross rent of a rental property. This includes the cost of rent for a rental property plus essential utilities such as water, gas, and electricity. Gross rent does not include non-essentials such as, internet, cable or satellite, and telephone utilities.
More so, contract rent is the rental payment that’s agreed upon in the lease. It can be based on a number of factors such as gross rent, shelter rent which is exclusive of all utilities, or somewhere in between.
Why is it important to charge the right rental price?
If landlords were at liberty to charge whatever they want, they would charge astronomical amounts for rent for their property in order to maximize profits. However, this isn’t the case, if rent is too high, you will find to attract potential tenants and reduce your vacancy rate.
A high vacancy rate is bad for business and it will have a significant effect on your profits. As such, landlords must make sure that their rent is fair and at the same time competitive enough to attract the best potential tenants to their properties. The right rental price will depend on numerous factors, and these include:
The type of property: Is your rental property an apartment, single-family home, or a duplex? Normally a single-family home will have a higher rental price than an apartment.
The size of the property: This has a considerable bearing on the rental price of a property. Is the rental unit a studio, a one-bedroom, a two-bedroom, a three- bedroom, etc.? The larger the size of the rental property, the higher the rent you can charge.
Utilities: In most cases, the rental rate may be higher if utilities (essential and/or non-essential) are included in the price.
The condition of the property: If your rental property has been recently renovated then it’ll be fair for you to charge higher. The better the condition of your rental property, the higher the rent.
The location of the property: Location is a major determinant in setting a rental rate. A rental property can charge more rent if it is located in a coveted neighborhood. Additionally, there are other factors that can increase the rental price of a property and these include: easy access to public transportation, a low crime rate, an excellent school district, parks, etc.
Furnished: If your rental property comes with furniture and/or appliances, that’s a justifiable reason for a higher rental rate.
Amenities: Good and sightly views, ample outdoor space, centralized air conditioning, gyms, and swimming pools are some of the amenities that can fetch a higher rental rate.
Pet Policy: Do you charge a pet fee? Do you allow pets?
Additional Features: Does your property offer extra features such as storage facilities or garage parking?
More so, bear in mind that demand has a huge part to play when it comes to determining a fair rental rate for your property. If there’s an existence of a fair market rental value and the absence of demand, you will have to lower your rental price to attract potential tenants. This is a major factor to consider, and it is important for landlords to monitor real estate trends in their area.
How to Calculate the Fair Rental Rate for Your Property?
There are numerous ways to calculate the right market rent for your property. Landlords can or utilize online resources, refer to similar rental properties in their areas, or determine their rates on the basis of fair rental values established by the federal government. In order to determine the best method for you, here are ways in which you can calculate a fair rental rate:
Make Use of Online Rental Websites
Time constraints may be an impediment for you to physically visit other rental properties, not to worry, you can do it online. All you have to do is visit rental websites like Zillow, Apartments.com, or Realtor.com, to find similar rental properties in your area. By utilizing these websites, you will be able to see the average or suggested rental rates.
You can equally check out newly rented properties or search for properties that are in demand as these are the ones that will likely charge fair rental rates. Compare your rental property with others to see if they have similar features and amenities. If they do, you can feel confident in charging the same amount for rent.
Look at Other Rental Properties in Your Neighborhood
As a landlord, you must ensure that your rental property is competitively priced. It can be useful and very helpful to take a look at other rental properties in your neighborhood. Endeavor to find rental properties that offer the same property type or size.
If the rental property is decently occupied, there’s a likelihood that they are charging a fair rental rate or something close to it. However, keep in mind that a high tenancy rate may also indicate a rental price that is too low. Meanwhile, if the rental property has too many vacancies, that’s an indication that the rental price may be too high.
Make Use of Fair Market Rents Set by HUD
Each year, the United States Department of Housing and Urban Development (HUD) comes up with fair market rents based on renter surveys, census data, and other relevant data regarding rental rates throughout the country.
The HUD has an online portal that is accessible to the public. Landlords can view fair market rents per state, county, and metropolitan area.
Furthermore, the HUD uses these fair rental values for their housing programs, these include the Housing Choice Voucher Program which is stated in Section 8 of the Housing Act of 1937. In this program, the federal government provides vouchers that can enable individuals to afford to rent a home.
To be eligible, you must meet certain requirements related to income level, citizenship, rental history, and family status. If a landlord decides to rent to a Section 8 tenant, the good news is that the HUD will be the one to pay you the fair market rent each month.
While landlords are not obliged to follow fair market rent rates, these values can be used to charge a fair rental rate for your property. It can also be a good starting point if you are not certain about how much to charge.
Make Use of Fair Rental Value Calculators
Did you know there are online resources that can help you compute a fair rental rate for your property? There are a number of websites that offer free services such as Zillow’s Zestimate feature, Rentometer.com or RentRage.com are among those that offer paid services.
If you are searching for a convenient and easy way to determine a fair rental rate, you may want to consider using these services. These websites are reliable and they use industry data to determine the rental rates so you can rely on the results that they provide.
Consult a Property Management Company
The benefits of using a property management company can’t be overemphasized, if you don’t have one yet, you should consider it. A good property manager has mastery of the real estate market and they equally have experience setting rental rates for many other properties. For these reasons and more, they will be able to conveniently determine the fair market rent for your property.
More so, a property management company does the heavy lifting and assumes most of the responsibilities of a landlord. If you do not want to deal with essential but arduous tasks like screening tenants, maintenance and repairs, rent collection, and marketing your property, it’ll be a smart idea to hire a property manager to take care of your rental units.
Maximize Profits by Charging a Fair Rental Rate: Setting rental rates sounds easy but it entails a lot of work. Some of the things you need to do are study the real estate market, consult fair market rents in your area, and examine similar rental properties. If the demand is high, there’s a possibility for you to charge a higher rental rate for your property. In contrast, if the fair market rent is higher than current market rates, it might be wiser to find Section 8 tenants. Even though this process may require a lot of time, energy, and effort, it is worth it. Charging a fair rental rate will enable you to maximize the profits of your investment property.