How Much Should I Charge for Rent? Key Factors to Consider
June 2, 2022
If you’re an independent landlord, you likely ask yourself “how much rent should I charge?” It’s essential to understand the importance of setting a rental rate that is profitable for your company while also attracting good tenants. Regardless of how long you’ve been in the industry, it can still be tricky to pinpoint the right price to charge for rent.
While you may be tempted to charge an aggressively high premium for your property compared to surrounding properties, doing so could isolate your renters. This could result in a long-term vacancy for your property. On the other hand, if you don’t charge enough for your property, it could result in your investment losing money.
At Keyrenter Houston, our property management services make it easy to know how much to charge for rent in the Houston area.
Why Does Charging the Right Rent Matter?
If you set an inaccurate or unfair rent number, you’ll quickly find that you are pushing qualified tenants away from your property. Once you do find tenants, the rent checks may slowly dwindle in the case that they are unable to keep up with the expensive rent. This could result in you having to spend thousands on an eviction and the need to repair your property in the case that there was damage.
By setting the right rent amount from the get go, you will attract more tenants who will be able to pay timely rent and keep your vacancy rates at a near minimum.
As an investor in rental properties, it’s important that you keep these three rules of thumb in mind when it comes to how much you charge for rent:
- The minimal rental rate is your break-even point that covers any existing operating expenses, monthly mortgage payments, insurance, etc. Make sure that you make your rental rate at least this amount so that you break even on your property.
- The maximum rental rate is the fair market rate that allows you to cover your expenses while also generating a profit for yourself. Investors may adjust the rental rate when the expenses are paid and a profit is still being generated. This is due to the fact that listing your property below fair market trade attracts a wider audience yet still allows property managers to generate a net operating income.
- The rental rate per square foot is the final rule of thumb to keep in mind. It’s an easy way to compare similar properties and determine how much to charge for rent.
How Much Should You Charge for Rent?
As you can tell, there’s nothing more important than setting the right rental rate as a real estate investor or property manager. Your rental rate will directly impact how much money you make back on your investment. Figuring out how much to charge for rent requires factoring in many different aspects, all of which we will explore below.
Check Rent Control Laws in Your Area
First, you’ll want to be well-versed in the rental laws in your city and state. There may be laws in place that impact how much you can charge for rent. If you break these laws, you could put yourself at risk of a slew of legal issues down the road. Before you set your rental price, make sure to research whether your property is subject to any vacancy control or rental control laws.
Research Your Local Rental Market
Once you have a better understanding of city and state laws, make sure you research the demand in your area. The rental market demand will undoubtedly impact how much you should charge. The more demand there is, the more you need to differentiate yourself from your competitors while still being mindful of making as much money as possible.
- Competitors: When it comes to your competition, make sure to do your research on other similar properties in your area. Not only will conducting this research help determine your rental rates but it can give you additional insight into the type of amenities that other buildings are offering. Simply checking the website is an easy place to start. If the rental price is not listed publicly, you can always pretend that you are a prospective lessee who wants to learn more about different units and prices.
Taking an in-person or virtual tour of your competition can help you grasp key similarities and differences that you might not see online. As a general guideline, here are some competitive factors to keep in mind:
- МLot size
- The year that the property was built
- When the most recent remodel was
- The number and type of units
- In-unit amenities
- Shared amenities
- Proximity to local transportation, grocery stores, etc.
- Seasons: Another factor that influences rental price is the season. For example, apartment searches increase starting around December and January. The search for property rentals often peaks in July. Looking at rental application trends, it’s clear that weather and living habits are driving forces when people move. It's more common for people to want to move in the summer than during the cold winter season. Plus, because families and college students make up a large rental market, they often get into a cycle of resigning their leases or finding a new lease during the summer months.
- Economy: Finally, the economy, both nationally and locally, impacts how much you should charge for rent. Residents won’t be willing to pay as much during a recession. When the economy is on an upward swing, don’t be afraid to charge more for rent.
Consider Your Property's Amenities to Adjust Rent
The amenities that your property has to offer are another driving force in how much to charge for rent. For example, you may find a property that is similar to yours but it doesn’t offer an important amenity such as an included washer and dryer or a gym. In this case, you might be able to justify a higher rent price that tenants are willing to pay.
When it comes to amenities, here are the top extras that lessees are seeking:
- Parking: Having on-site parking or a garage is a huge plus for many renters. Make sure to state clearly whether it is street parking or a garage spot that’s assigned.
- Security: There’s no such thing as too much security for a property. It will give your renters peace of mind that they are safe around the clock. If possible, offer smart home technology or other systems that you have.
- Walkability: Ideally, your property will be in a convenient location and easily walkable to different areas of the city.
- Outdoor entertainment space: Having an indoor or outdoor pool, balconies, patios, and recreation areas is a major selling point.
Take Into Account Additional Expenses
Make sure that how much you charge for rent covers the overhead expenses that you incur as a landlord or property owner. To determine this number, make sure to closely track your expenses, evictions, and vacancies both month-over-month and year-over-year. For example, you should factor in the cost of a burst pipe if your property is exposed to hard conditions. You can also evaluate how warm summers could result in HVAC systems that need repairs. Always factor in general wear and tear from tenants and some may even unexpectedly cause property damage.
Here are the expenses to keep in mind:
- HOAs (if you have one)
- General property maintenance
- Unit-specific maintenance
- Garden preservation and property landscaping
- Laundry room maintenance
- Cost of vacancy
Determine the Best Ways to Collect Rent from Your Tenants
As soon as you know how much rent to charge, make sure you have a sound method of collecting rent. The rent collection method may vary based on your tenants and their needs. If possible, you’ll offer more than one way to collect rent to give each tenant the flexibility they need to pay on time. The majority of renters like to pay their rent online, so offer that as an option if you can.
In addition, you can collect rent in the following ways:
- Through a property manager
- Through an online portal, a service that Keyrenter Houston offers
- Face-to-face payments
- Through a personal check, money order, or cashier’s check
- Direct deposit
- Rent collection app
How Can You Get More Rent?
If you’re a landlord and you are looking to increase how much you charge for rent, there may or may not be steps that you can take to do so. If you have already upgraded your building and ensured that it has plenty of impressive offerings for your tenants, you might not be able to get away with charging more money. The last thing you want to do is increase your rent only for your tenants to become angry or unable to pay rent. This will leave you with additional vacancies and a negative reputation as a property owner.
If possible, you can invest in upgrading your current property to make it more appealing to tenants. Consider investing in a professional painting company to touch up your walls, make sure all of the carpeting is professionally cleaned, and touch up any scuffs on wooden floors. Carefully inspecting each room and making upgrades and changes can help increase your overall property value and give you the grounds to stand on to charge more money. If you notice that the rental market is incredibly hot during a particular season, consider increasing your rent to stay competitive with similar properties.
Finally, working with a company like Keyrenter Houston can help ensure you get the most amount of money possible each month. We’re passionate about renting your property for you in addition to managing the tenants, rent, maintenance, accounting, and more!
It can be stressful to find the right rental price for your property. With so many factors in play simultaneously, you want to make sure that you price your rent fairly while still being mindful of your bottom line. Our professionals at Keyrenter Houston Property Management Company are highly skilled in this area and we are happy to assist you!
To learn more about how we can help, please contact us today!