Use the 1% Rule to Determine How Much to Charge When Renting Your Property
As personal finance site Afford Anything points out, if the rent you charge is less than 1% of the overall cost of the rental property, it’s going to take too long for the property to pay for itself. Additional costs accumulate over the years, and you still need to pay back the initial cost as well. If you’re charging anything less than 1% of the home’s worth, it could take decades to be worth it:
If a property costs $205,000 and rents for $2,000, it’s a rounding error away. That’s fine, as rental pricing itself is an approximation. A property that “rents” for $2,000 could be priced between $1,900 – $2,100 depending on the season, lease term, and other variables.
Rent is a range. There’s no such thing as a property that only rents for $2,000.00, with no variation. Even at that price, a GRM of 102.5 instead of 100 won’t murder your returns. But if a property costs $205,000 and rents for $1,400, skip it. You deserve better.
For renters, the flip side of this is also helpful information. If you’re viewing a rental property, you can also check out how much the property costs on the market through sites like Zillow. If the price-to-rent ratio is unfavorable to a landlord, it may be favorable to you, allowing you to get more home in a better neighborhood than what you’re paying for it.
Source: lifehacker.com
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