Determining how much rent to charge can be one of the harder parts of being a landlord. You need to think about the economy, seasons, amenities, and much more. The profit you make as a landlord may also be part of your income, which can make the decision more complex. Ideally, you want to keep tenant turnover low and your occupancy rate high so your property stays profitable.
However, the amount of rent you charge can greatly affect how many tenants you attract and the type of tenants who apply. If numbers are not your strong point or you are having trouble deciding what tenants should pay, here is how to determine how much you should charge for rent.
The first step in determining how much rent to charge is learning about your local and state laws. Rent control laws can limit how much a landlord may charge, and these laws vary by state and sometimes by city. Currently, Oregon is the only state with statewide rent control laws, so it is best to check with your local housing council to make sure you follow the rules.
These laws often prevent landlords from charging too much by limiting how much they can charge per unit and how much they can raise rent each year. Rent control is often more common in areas where competition is high and tenant income is low to moderate.
Rental competition can change throughout the year, with searches often peaking in July. Rental applications rise and fall with the seasons because many people prefer to move during warmer months. If you own property in or near a college town, rental applications may also rise during summer as students look for housing for the next school year.
However, these seasonal changes depend on the area, so it is best to watch local trends before making broad assumptions. To match changes in the market, you may be able to raise rent during busy periods when demand is high and lower it when demand is weaker. You should also be ready to compete with other rentals in your area.
Knowing your competitors can help you determine how much rent to charge and prepare for busy rental seasons. You can look online or schedule a tour to see nearby properties and learn more about their prices and policies. One major factor to compare is the amenities they offer and how those features affect rent.
For example, if nearby properties offer more amenities than yours, you may want to lower your rent so your price is more competitive. The opposite can also be true. You may be able to charge more if your property offers more amenities or has recently updated features.
Other factors to review include outdoor or shared spaces, recent remodeling, unit size, and distance from transportation, activities, grocery stores, hospitals, and other daily needs. These details can affect what your competitors charge, and they should also play a role in what you charge.
Local and national economies can affect rent prices. During an economic downturn, you may need to lower prices, while a stronger economy may allow for higher rent. Check nearby rentals to get a better idea of the normal price range during these periods. If demand drops, as it did during the COVID-19 pandemic, you may also need to lower your rates.
During the pandemic, fewer people moved because of the economy, job changes, family needs, and delayed events that often lead people to relocate, such as marriages and honeymoons. Some people who did move chose suburbs instead of crowded cities. This is why you should watch market trends and understand why demand is rising or falling. The market can change quickly, so your rent may need to change with it.
The rent you charge should at least account for the extra costs of managing your property as a landlord. Keep track of your expenses along with your monthly and yearly tenant turnover rates. It also helps to plan for future costs caused by changing seasons and normal wear and tear.
For example, energy bills may rise during summer because tenants use air conditioning units, fans, and other cooling systems more often. If you are unsure which expenses to include, consider taxes, future repairs, landscaping, employee pay, property damage, and the cost of leaving a unit vacant.
Features that commonly justify higher rent:
Ideally, your property’s rent should be between 0.8 percent and 1.1 percent of its total market value. The value of your property can help determine whether you use 0.8 percent or 1.1 percent. For example, if your property is worth less than $400,000, you may want to stay near the lower end of the range, which would be about $3,200 per month and $38,400 per tenant for a yearly lease.
If your property is worth more than $400,000, you may want to use the higher end of the range, or 1.1 percent. This could bring rent to about $4,000 to $5,000 per month and up to $66,000 per tenant for a yearly lease. However, this should not be the only factor you use because the average American cannot afford $5,000 per month in rent.
You should also consider the type of tenants you want to attract, the average income of renters in the area, and the other factors covered in this article.
There are several other factors to consider when deciding how much rent to charge. If your property has a parking lot or garage, you may be able to charge an extra fee, especially for assigned parking spaces. Tenants may also pay more if a property offers added security. This could include security guards, alarm systems, or combination locks. Location also plays a major role.
The surrounding neighborhood can matter even more for single-family homes. Families with children often rent these homes and may pay more to live in a secure area near schools, hospitals, grocery stores, and family-friendly activities. In the end, think about what makes your property different from nearby rentals when deciding how much rent to charge.
Now that you know how to determine how much you should charge for rent, you can set a price for your properties with more confidence. If you are still unsure where to begin and own property in Georgia, experienced property managers can help make managing your rental property a little easier.
