Do you have a property you want to rent out but are unsure what the rent per month should be? Today I am showing you different resources that can help you set a reasonable price.
Today I want to discuss how to properly price your rental property. I will talk about two primary things, including what data we use and what philosophy and level of risk tolerance we and the property owner have. These two things will help you know how to price your home.
The important thing to know when it comes to pricing a rental property is that there is no hard and fast method like there is in home sales. There is no massive database of closed properties where we can compare one place to another to see the differences for rental rates.
In property management, most of the data that is available is for properties that are on the market to rent currently, so you do not know what other properties previously rented for. While you may know the advertised price, many places often rent in less than that.
In terms of the data, we look at three primary sources to do rent-match comparisons.
1. AppFolio. Using our CRM and database software provider, AppFolio, we can look at actual rented properties in our marketplace. It is probably the most accurate method. The data can show us similar properties with the same number of bedrooms and bathrooms as well as square footage to help us make a good estimate of what your home should rent for. In this case, it is very close to the middle.
2. Rent-O-Meter. The difference between this and AppFolio is that this primarily includes on-the-market rentals or homes that have rented but did not register what price they rented for. It goes off of what price they were advertised ant not the rented price, so the data tends to show slightly higher numbers.
Since we know that this website is using slightly less accurate data, we usually take 10% to 15% off of the median price. This gives us a better number of what we should go on the market at. When we deduct that 10% to 15% off of a median price of $1,745, that brings us right back to $1,550.
Similar to the AppFolio data, this shows us all the properties that we’re using and how far away they were as well as the square footage and how many bedrooms and bathrooms there are in each comparable property.
3. For rent sites. We will pull up sites such as Zillow and apartments.com to see what is actively on the market around the home that you are renting out. This helps us see the competition, but it is the least accurate method for determining a rental rate.
That’s the data approach. The second part of pricing is assessing what your risk tolerance is as the owner and your general philosophy.
What I mean is this: for the same home we have been looking at, we could easily put it on the market for $1,850 or $1,900 per month. You may find a potential tenant who is willing to pay $1,900, however, since we are above the market norm for this kind of home, that tenant is going to see red flags.
It may take 60 to 90 days to find somebody at that price and so it is a game of risk tolerance when we get more reasonable. So, by coming down to $1,650 per month, you can squeeze every penny out of the property that you can. You could make the same amount of money at the end of the year by waiting to rent it. We have to decide if you can tolerate this risk and then work to find the right tenant for the property.
If you have any questions about this or are interested in renting out your property with us, please let me know. I would be happy to speak with you about it.