Imagine you’ve got a house or apartment that you want to rent out. Someone in your circle tells you that you could easily rent the property out and make some monthly cash flow. Sounds great, but there’s just one tricky part: How do you figure out how much rent to charge?
Set the rent too high, and you might scare away potential renters. Set it too low, and you’re not making as much as you could. Kind of like Goldilocks, you need to get it jusssst righhhht.
With all of that being said, let’s dive into how you can set the right rent for your rental property and maximize your cash flow without unintentionally undercutting yourself.
- Check Out the Competition. First up, you need to play detective. Look around your neighborhood or area and see what others are charging for similar places. It’s like when you’re shopping for a new phone plan and you compare prices and benefits to find the best deal. Websites that list rental properties can be super helpful for this. Take notes on what other places offer, like extra bathrooms, a pool, or being super close to schools or shops, and see how your place stacks up.
- Think About What Your Place Offers. Now, take a good look at your property. What makes it special? Maybe it’s got a killer view, a brand-new kitchen, or it’s right next to the bus stop. These are all things that can make your place more valuable to renters. Make a list of everything that’s great about your place, because all these things can combine to help justify a higher rent.
- Understand Your Costs. Owning and managing a rental property isn’t free. You’ve got to think about things like taxes, insurance, repairs, and maybe even paying someone to help manage the place if you’re not doing it yourself. Add up all of these costs to figure out what your “monthly nut” is. (The total amount of expenses required to keep the property operational every month.) You want to make sure the rent covers all these expenses, so you’re not losing money.
- Talk to the Pros. If all of this sounds a bit overwhelming, you can always talk to a professional property manager or a real estate agent. Most local property management companies will help you figure out a good rate. For example, Green Residential in Texas offers a free Dallas property management analysis to people who reach out. Having this sort of insight can help you make educated decisions, regardless of whether you decide to use property management services or DIY for a while.
- Consider the Market. The rental market can go up and down, kind of like an unpredictable roller coaster. Sometimes lots of people are looking for places to rent, which can mean you can charge a bit more. Other times, not so many people are looking, and you might need to charge a bit less to attract renters. Keep an eye on local news and talk to people to get a feel for what the market is like. You’ll also want to pay attention to supply. If developers just built 500 new condos near your property with amazing amenities in a similar price range, this is obviously going to impact the desirability of your property and force you to offer a more competitive price. On the flip side, if a new company that employs 3,000 people just moved to town and there’s still the same supply of housing nearby, this indicates you can probably increase your rate.
- Don’t Forget About the Extras. If your place comes with extra perks, like a parking spot, gym access, or even free Wi-Fi, that’s all worth money. Make sure you think about these when setting your rent because they can make your place more attractive to potential renters and justify a higher price.
Be Ready to Adjust
Setting the right rent isn’t a “set it and forget it” kind of deal. You’ve got to be ready to change things up if needed. Maybe you start too high and don’t get any interest. It’s okay to lower the rent a bit to get someone in. Or maybe you realize you’re charging too little and can bump it up a bit next time. It’s all about finding that sweet spot where your renters are happy, and you’re making good money.
