How Do I Determine the Rental Price for My Property?
The Answer Might Surprise You!
“How much will my property rent for?” This is one of the most common questions I get asked as a property manager in Salt Lake City. Most first time landlords often have a difficult time deciding how to set the rental price at for their investment property. Even seasoned real estate investors often wonder the same question. The surprising answer is, they don’t decide the rent at all…ultimately the market does.
The importance of correctly establishing the rental price of a property:
Renting a property quickly, and reducing turnover are important to the success of any rental investment. A landlord almost always loses more money in lost rents from their property sitting vacant, then they would have by reducing the rental price and asking market rents in the first place. I have also found that because interest in the property is so low, rental property owners often become desperate and approve tenants to rent their property that are not qualified, leading to further financial problems.
Higher rental price properties also have a lot higher turnover. It has been my experience over my years as a property manager in Salt Lake City that if a property rents for the above market price (and that’s a big if), it is often someone moving from out of state who is not familiar with the market. Once they find out what rents are in the area, they often decide to move at the end of the first term of their lease, starting the cycle all over again.
Amenities do not increase the market rents or rental price:
Sorry, but your stainless steal appliance does not necessarily mean your property will rent for more money. Size of the kitchen or bedrooms, layout, granite countertops, and appliances doesn’t change what the market is paying as much as it helps determine how quickly the property will rent. Every property will rent. The question here has to do with market and perceived value.
There are highs and lows in every area, but there is a limit in every market as to what someone is willing to pay for say a 3 bedroom home. When I say market, I am referring to the immediate area and not necessarily a city or even suburb. Justifying a particular rental price, for example, because another 3 bedroom across town was asking that price does about as much good as setting your price because that’s what a home in Upper Manhattan rented for. When people search for a rental property in an area they don’t search by the amenities, they search by price and the number of bedrooms. They are searching to find properties that meet their financial needs (price) and their physical needs (bedrooms). Your ability to produce leads for your vacant property will in large part be determined by the price of the property when compared to all the other available properties that size in the area. Your home may very well be worth every penny you are asking, but if no one ever sees it because it is over priced for the market, it will be very difficult to rent.
Once a property is priced appropriately for the market, even if it is at the high end of that market, the question is now about value. A potential tenant must believe that the value perceive from the property exceeds the additional money they are required to part with when compared to the property without those same amenities available down the road.
Recourses for finding market rents and the proper rental price:
One of the difficulties in finding what the market is paying for rent in the area is that there are not a lot of resources for landlords. In addition, properties can very so drastically from neighborhood to neighborhood even street to street that relying on the limited tools that are available can still be difficult.
Although these tools are not perfect and should be used with caution, they are still great ways to get a general idea of the market and will get you started finding the correct rental price for your property.
- zillow.com – Although Zillow does not give you comparisons of other properties for rent in the area, they do provide a rent estimate when you search for your rental properties address.
- rentometer.com – By providing limited property information, this site will run an east to read report on rental properties in the area that have been listed for rent and shows you what the average and median rents are in the area.
Because both of these resources have limited information, they are a good place to start but should not be relied on alone.
One of the best ways to determine market rents and the correct renal price for a rental property is to find comparable properties being marketed for rent in the area. This requires rental property owners to take an unbiased and honest look at their property and find others in the area that are similar. Often rental property owners make the mistake of thinking their rental is better and should get a higher then the property down the street, especially if there is some emotional attachment to the property like if it was their personal residence or if they just remodeled it.
Seek the advice from a property management company:
Property management companies are a great resource to help you determine market rents for your property. Because property managers have no emotional connection to the property, they are able to give a lot better unbiased opinion. In addition, because many property owner struggle with the same questions of rental price, just because a property is listed at a price does not mean it will rent for that amount.
Using market response as a gauge:
Gauging the response you get from marketing and showing your vacant property can be a great indicator as to if your property’s rental price is correct. If leads for the property are just trickling in resulting in very few, if any showings then it is highly likely your rental price is too high. However, if the interest and showings on the property are high, but after potential tenants see the property they choose not to submit an application, your price may be right for the market, but there may be a concern with the condition of the property, its size, layout or amenities when compared to other properties at that price in the area. It may be necessary to either reduce the price or increase its perceived value.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.