Rent prices are at an all-time high in many cities across the United States, as higher housing costs drive up rental prices. Studies show that the median rent for a two-bedroom apartment has risen over 14% since January 20201.
As a landlord, it is important that you learn how to set fair rental rates for your tenants while still making a profit. If your rent is priced too high, you may not be able to find tenants. If it is too low, you will not make as much profit and you might attract low-quality tenants.
Do you want to learn more about what you can charge for rent at your rental property? Keep reading this guide for everything you need to know to calculate rental rates for your tenants.
Know the Competition
The easiest way you can set rental rates for your property is by learning more about the competition in your area. You can easily look up what other landlords in your area are charging for similar houses.
Because rental prices can vary greatly between cities and states, it is important that you do local research to see what comparable properties are renting for. You can also look at the fair market value estimations.
This is updated by the Department of Housing and Urban development and will make it easy to set a fair price for both you and your tenants. To compare your rental property to similar properties, find another property in the same neighborhood, with the same number of bedrooms and bathrooms, and other similar features.
Size of the Property
Next, you need to consider the size of the property. Apartments that have more bedrooms or bathrooms will be worth much more than smaller apartments, even if the square footage is relatively close.
If you are renting out a single-family home, you should also adjust the price of rent if your property has a yard or any other outdoor features.
Look at Rental Property Sites
Another simple way to calculate rental rates is by looking at rental property sites. These make it easy to view properties for rent in your area if you don’t have time to check out apartments in person.
When you use rental property websites, you can use filters to find properties that are comparable to yours. For example, you can see properties with the same number of bedrooms and bathrooms, those in the same part of town, and properties that have similar amenities.
Using rental property sites can also help you identify which prices are working best for other landlords. For example, if you see an apartment that has been listed for weeks, it is likely that the prices are too high for the property.
Consider Interest in Your Property
It is also necessary to consider the interest in your property when you calculate rental rates. If you have a property in a great location that always has a waiting list for tenants, you may be able to raise your rental price.
You must also realize that you can’t set your rental price once. As the market changes, you will need to adjust the price of your rent based on market demand. For example, in a housing crisis when the economy is bad, the demand for rentals will go up because people cannot afford to buy a home.
If you own a property in a college town, you may notice that the demand for your property goes up during the fall when a new semester starts. When there is a higher demand for your property, you can charge more for rent. When there is lower demand, you can lower the rent to attract more tenants.
As you shift your rental prices to match the market demand, you will get the most money from your rental property.
Add the Value of Amenities
Next, it is important to understand that the amenities you offer at your rental property will play a significant part in how much you can charge for rent. If you set a standard price for the number of bedrooms in your unit, you may end up losing money.
For example, different units may be more desirable than others in your complex. If you have a few apartments with a better view, updated appliances and renovations, or even a better layout, you will be able to charge more for these units than others.
Plus, properties that include things like an on-site gym, washers and dryers, or even a pool will be worth more to tenants. This means you can charge more per month if you have better amenities than other properties in your area.
Charge a percentage of the Property Value
Finally, you can consider setting your rent as a percentage of your property value. For example, the 2% rule says that your monthly rental rates should be anywhere from 1-2% of the overall property value.
However, this should only be used as an estimate. It is a quick way to estimate your potential rent and you should still do plenty of research before you set your rental rates.
Need Help Setting Rental Rates?
Setting the rental price for your property is an essential part of attracting the right tenants and maximizing your profit as a property owner. By considering each of these factors, you will know what to charge for rent in Memphis, TN.
If you need help setting your rental rates for your property, finding a property management company like Reedy & Company can help! Our team provides expert advice about the real estate market in Memphis, TN and can help you maximize your profits.
Contact us today to learn more about our property management services.