How to Set the Right Rent Price for Your Investment Property

  • Oct 4, 2016, 11:00 AM

Free Email Updates

Stay up to date with the latest tips for Traditional & Airbnb Investments

The Expert Guide to Real Estate Investments

Whether you have a traditional rental or an Airbnb listing, setting the right rent price for a rental property can be a bit tricky. On one hand, you obviously don't want to price the property too low, since you will receive little or even no profit. However, on the flip-side, making the price too high can repel a tenant’s interest in the property. So how do you find the perfect middle ground? Here are a couple of steps to finding your optimal rent price and tips on how to set the price right and even increase it.

Related: How Much Can I Rent My House for?

1) For starters, you need to find out the value of your property, how much is it worth?

This will most likely be different than the price paid to purchase the property. An effective way to figure this out is to perform a real estate market analysis. Use Mashvisor to easily find this out. Keep in mind that the value of your property will depend on many factors such as location, age, condition, size, improvements, features, amenities, among others.

Related: How to Perform a Real Estate Market Analysis

2) Once you know how much the property is worth, calculate the monthly rent

The fundamental rent price calculation is in the range of 0.8%-1.1% of the property’s value. A good guideline of this is to charge near 1-1.1% for cheaper properties (approximately $100,000 or less) and near 0.8% for more expensive properties ($350,000 or more).

Now that we’ve covered the two steps to calculating rent prices, use these tips to make sure you've got your rent price right where you want it. 

  • Maximize the amount of profit you earn from the rental

This isn’t the same as maximizing the rent, though. What’s the difference? Maximizing the rent will be unfair to the tenants, especially if nearby similar properties do not charge as much. This will in turn make your rental unattractive. Maximizing the profit, on the contrary, makes the best use of the money you have left over from deducting necessary payments (taxes, damages, etc.) from your income. For example, leasing the property to tenants who would cause no damage or trouble for a decent price is better than leasing it to tenants who will cause damage and ruckus for a higher price. In fact, renting to the latter tenants can make you lose more, even with a higher rent price, if damage payments become too hefty.

Are these properties similar to yours in size, resources, and/or other aspects? If so, then you should charge at a similar rent price. What if the properties are not similar? This leads us to our next point:

  • Provide more utilities and amenities to raise the price

For example, if your unit has a better view, more enhanced appliances, and/or more spacious rooms compared to close-by rentals, you should demand a higher rent price. You can even raise the price by adding a common utility. Say you put a $700 electric oven in a unit; you can add roughly $40 to the monthly rent. Make sure any utilities and how they are to be used are clearly mentioned in the lease agreement. It is also a good idea to consider an upgrade for your property, to either increase the rent you demand or to renovate before the unit falls into decay.

  • The right price plays in with the demand

Rent prices are not constant, they fluctuate with demand. The more demand on your property, the more you can charge as rent. Different conditions can alter the demand of rentals. For example, out of the four seasons, demand for rental properties peaks during the summer. The reasons are twofold; it is easier to move into a new home during the summer and school is off during the season. A less vibrant condition is when the economy is struggling. Demand for rental properties increases since people can no longer maintain their homes. Demand for smaller and cheaper units increases in particular.

Although we have mentioned conditions that lead to demands, you can certainly condition the demands. If you decide to show multiple tenants the rental simultaneously, the prospective tenants will feel a sense of urgency (demand) over renting the property.

As of right now, we have covered ways to set the right rent price for traditional properties. Most of the tips for Airbnb properties revolve around the similar premise, but with subtle changes:

Related: How do I price my Airbnb property?

  • To get a rough estimate of how much you can charge nightly, divide your monthly rent by 30. This may come off as simplistic but it gives you a rudimentary perspective on how much you can charge.
  • Just like with traditional rentals, compare nearby properties. See how much they are charging and whether or not your listing is similar. To gain an upper hand, include amenities and resources that are not common in your area.
  • Start out with a low rent price. Getting customers can be tough if you start out on Airbnb with no reviews. Good reviews give you and your property more credibility. After you’ve hosted happy guests who leave behind good reviews, you can slowly uptick the price. Don’t increase it too much or rapidly because tenants will no longer be too interested.
  • Increase the rent price when there's an increase in demand. Just like traditional rentals, there are times or circumstances that increase an Airbnb property’s demand. Set different prices for holidays, high season (typically summer), weekends, and special events.

Rent prices are your bread and butter when it comes to real estate. Therefore, is very important that you consider everything that can affect it. Even once you have set the price, there’s no guarantee it remains the same. Pay attention to anything that can alter the price and act accordingly.  

Your Search For Rental Property Starts and Ends Here

Make business intelligent investments with analysis of rental pricing, traditional & Airbnb occupancy rates, seasonality trends and financial investment analysis.

comments powered by Disqus