This Landlord Gurus experience article will review the importance of pricing your rental correctly, and how you can do so. As discussed in this video, it’s important to price your rental accurately so that you can maximize your profits.
Also Read: Rent Pricing: How Much To Charge For Rent?
Pricing Too High and Pricing Too Low
When it comes time to list your property and decide a rent price again, one option is to set the price high.
“One option is to price it high, but then what happens if it sits on the market for a long time? If it takes one month or two months or three months to rent out, eventually you might get that price, but at the expense of losing out on a few months of rent,” Chris said.
Eli also shared his experience with setting a high price. He discussed how he lost at least a month of rent during the time it took to fill the vacancy.
The other option is to set the price low.
“Conversely, you might think, ‘Well, let’s just get it rented as quick as possible and I’ll set it at a low price.’ But then, you may end up in a situation where someone rents it really quickly and that’s great and you got somebody in there, but increasingly it becomes more difficult to increase that rent price as time goes on,” Chris said.
In some locations, there are limits on rent increases. In others, you might have to give a warning about the increase.
Eli also mentioned that if he set the rent low, raising it too much might cause tenants to become upset.
“Then they start looking around and the potential is that they’ll move, just kind of out of being upset,” Eli said.
For him, a 10% increase is likely the maximum. As in his experience, anything over that tends to backfire.
Again, Chris went back to how some locations may not even let you raise the rent by that much.
How Should You Price Your Rental Accurately?
Some people use what’s called the 1% or 2% rule, which is where you charge rent that is at least 1% or 2% of the property’s value. There are other rules of thumb, such as charging based on a gross rent multiplier or capitalization rates.
Also Read: Rental Property Calculators for Landlords
However, Chris mentioned that these methods often don’t consider what the market is like and what your property offers.
Therefore, Chris and Eli recommend charging rent based on similar properties near you, as well as the amenities you have.
“Renters are going to search and they’re gonna see a list or a smattering on a map with prices. Even if there’s a pretty good reason for it, if it’s too out of step with what else is going on there, based on two bedrooms, one bath, or the basic configuration, then they’re just going to skip it. So you have to be in the ballpark,” Eli said.
Another thing you need to consider is your own costs. Many rentals will also include fees for utilities and amenities.
“We’re talking about a balancing act here between what you need and what you can get. And we touched on amenities, Chris, you know, some people provide Wi-Fi, for example. And Wi-Fi, if you have a few units, at least, it’s probably a fairly affordable amenity to provide for people,” Eli said. “If it grabs people, then that may well be worth it.”
Eli also mentioned that you generally aren’t allowed to charge rent based on how many people are living on the property. However, you can charge utilities based on how many people are there.
When looking at rent pricing in your area, you should be sure to check the descriptions. Is someone charging $1200 including utilities or not?
Rent Pricing Software
There are a vast number of services out there that can help you with rent pricing.
Rentometer, for example, “grabs listings from somewhere, I don’t really know where, you know, the listing sites I think, and it takes a geographic area right around you and it calculates square footage, bedroom count, bathroom count. They’re estimating, but what they’ll give you, generally, is a range. And so you’ll know what the median is. And you can figure out what side of that your property belongs on, but also see where you are in the mix,” Eli said.
Software like Avail and TurboTenant offer broader property management tools. Whereas Rentometer solely does rental pricing.
Rent Pricing: Landlord Gurus Takeaway
When it comes to pricing your rental, it can be tough. Pricing too low can lead to lower profits, but so can pricing too high. A general guideline is to look at the market in the area around you. Another tip is to use software like Rentometer, RentCast, Avail, and TurboTenant to help you out.
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