Setting a competitive rental price is fundamental to landlord success. It is common to want to rent out your home, but the process involves several considerations.
Things to Consider Before Renting Out Your Home
Are you prepared to:
- Fix up your property before renting it out?
- Cover expenses, such as property taxes, maintenance costs, and homeowner's insurance?
- Advertise your home?
- Screen and select potential tenants?
These represent only a few of the responsibilities that come with being a landlord.
How Much Should I Charge for Rent?
Renting out your home can be lucrative. You may generate enough income to accelerate your mortgage payoff, or pocket profits while growing your savings.
Determining rental rates is a step-by-step process, starting with making sure the rent covers your mortgage and expenses.
Cover Your Mortgage and Expenses
Rent must be at least equal to your monthly mortgage payment if you want tenants to cover it. Additionally, factor in maintenance costs, insurance, taxes, homeowner association fees, and any utilities you might cover for tenants.
Breaking even is risky because emergencies arise and deplete savings. Protect your assets by charging enough to create a financial buffer.
The Worth of Your Home
Knowing your home's market value is key to calculating appropriate rent. Online services like Zillow estimate market value, or you can hire a professional appraiser.
Typically, landlords base the rent that they charge between .8% and 1.1% of the home's market value. For example, a $150,000 home might rent for $1,200 to $1,650 monthly. However, affordability and community averages must factor into your calculations.
If your home is worth less than comparable neighborhood properties, say $100,000, consider charging 1%, or $1,000 monthly. If it is worth more, say $175,000, but the neighborhood average is $1,500 or less, you may need to charge 0.8%, around $1,400, to remain competitive.
Average Rent in the Community
Compare your property to other rentals in your area, considering size, condition, and amenities like appliances. Search websites such as Trulia or Craigslist to determine local pricing.
Consider location advantages: walking distance to shopping or entertainment, proximity to public transportation, or location in preferred school districts.
Offer Incentives
Include incentives to increase rental value without driving away prospective tenants or creating extended vacancies. Options include utilities included in rent, online lease payments, or early payment discounts.
Paid utilities are a powerful incentive in the rental market. If the average electric bill is $130, charge an additional $150 and advertise "electric included." This covers the average cost while generating $20 in monthly profit, and it appeals to tenants who value predictability.
Seasonal Timing and Demand
People typically relocate during the summer months, especially families with school-aged children. You can charge more when demand peaks.
During winter's slower season, offer lower rent to attract tenants. Alternatively, extend rental contracts to 15 or 16 months rather than 12 months. If tenants renew, reset to a 12-month term ending during peak season. Increase rent upon renewal only in manageable increments to retain tenants.
Rent Control Laws
Some states enforce rent control regulations. As of 2019, California, New York, New Jersey, Maryland, and the District of Columbia have residential rent control in effect.
Texas has no general rent control laws except Section 214.902 of the Texas Property Code, which permits municipalities to establish temporary rent control during housing emergencies declared by the governor, typically following disasters.
Get Professional Assistance
Managing all landlord responsibilities can feel overwhelming. Professional property management services can determine appropriate rental rates and eliminate day-to-day management worries.