How To Properly Price Your Rental Property
Owning a rental property requires making a lot of significant decisions. One of the most important decisions you’ll make as a landlord is about how to price your rental property accurately. A rental rate that is too high may discourage renters from choosing your property over the competition, and a rental rate too low may end up costing you more money. Here are a few guidelines to help you decide the right rate to charge your tenants:
Understand Your Home’s Market Value
When you know how much your home is worth, it can be easier to calculate a fair and accurate rental price. Typically, landlords base their monthly rental rate on .08%-.1.1% of their home’s value. For example, if your home is valued at $300,000, a realistic rental price would be between $2400 and $3300 each month.
Apartments and single-family homes that are valued at below the current value median,commonly found in suburbs like Bonsall, Fallbrook, and Ramona, may attract more renters if the rental rate is closer to 1-2% of the home’s value.
Homes above average, such as those in neighborhoods like North City and Carmel Valley, may also be more successful by choosing a slightly lower rental rate vs. sticking to the .08%-.1.1% industry standard. An extremely high rental price, even if it is a small percentage of the home’s value, may make your home unaffordable when combined with the cost of living.
Look Into Comparable Properties In The Area
While the percentage model based on the home’s value should be used as a guide, there are other things to consider when determining a fair rental rate for your home. If you are working with a Murrieta property management company (or other property management company in your area), you will have access to comparative market analysis or CMA. This detailed report compares your home with other homes for sale/rent in your area. It gives you a clear idea about what the average rent price is in your area for homes that are similar to yours. It will also help put to rest any doubts as to whether you should rent long term or opt for a vacation rental.
If you are asking for a higher rent than other similar properties in your area, it could be hard to find motivated renters. If your rental price is significantly lower than properties, renters will assume something is wrong with the property to justify such a low rate. Even if you do get a qualified tenant at a lower-than-average monthly rate, you may not qualify for specific tax benefits, and it could make it harder to reach your personal financial goals.
Research California Rent Control Laws
The Tenant Protection Act of 2019 goes into effect on January 1st, 2020, and will affect the way landlords set and raise their rent prices. If you planned to establish an initial rental rate and then raise it consistently throughout the year, this new legislation might make that hard to do. In short, these new rental laws put a cap on how much landlords can increase their rent each year, and requires just cause for evictions. Being aware of these laws will help you set a long term rental pricing strategy.
Traditionally, summertime has been the best time to market a rental property because this is when most renters are looking to relocate. Renters are more likely to pay higher rent prices in the summer because the demand for properties is high during this time. If possible, have your leases end in the summer so that you’re always bringing in new tenants during peak season.
Amenities and Appliances
If your investment property has upgraded appliances and facilities, you can charge a higher monthly rental rate. One of the best ways to increase your home’s value is to enhance the kitchens and the bathrooms. Renters are willing to pay higher prices for homes with innovative and modern amenities in these areas. Factors such as the views from the house, the square footage, the appliances, the layout, and any extra features like balconies or additional office space, can all contribute to higher rental rates.
Supply Vs. Demand
Real estate investments are not exempt from the classic supply vs. demand pricing structure. Just like with any other consumer good, when the demand is higher, so is the price. When you take into consideration your home’s value, the comparative market analysis, the current season and your home’s unique upgrades, you can put together a fair and accurate rental rate that will attract qualified tenants.
While none of these things should be your sole deciding factor on how much you charge for rent, considering all of them together will help you make a more informed and confident decision about how much you charge for rent.
Benefit National Can Help Price Your Rental Property
One of the reasons so many California residents choose Murrieta property management or Temecula property management is because property managers know and understand rental pricing structures.
If finding the right price for your rental property is stressing you out, contact us today. We’d love to discuss all of your options and help you come up with a rental price that is both fair for the renter and profitable for you.