Whether you own or manage one rental property or hundreds of rentals across the country, you need to be able to set fair market rents confidently.
If your rent is set too high, the property can sit on the market and you will miss out on monthly rental income. And if the rent is set lower than the competition, simply put, you will leave money on the table.
As we know, rents vary greatly from market to market, but can even differ from one street to the next within a single neighborhood. Obviously, numerous variables impact the rent you can charge for your rental unit, including location, type of building (duplex, apartment building, etc.), size/square feet, age of unit, number of beds/baths, and amenities (i.e. parking, AC, pool, roof deck, and so on.)
Don’t be fooled that any one rent comp, property manager, or local real estate agent can tell you the perfect fair market rent for your property. We recommend that you tap into a handful of resources to help you set rents confidently.
1. Find some rent comps to give you a starting point
Check local apartment listings using the local newspaper, online apartment guides, or websites like Craigslist and Rentometer to get a feel for the “going rents.” Rentometer can give you historical rent trends for the area and a good starting-point rent. You can further refine the rent from there by using some of the suggestions listed below.
2. Stay up to date on the economic and business activity in the local market
Is it thriving? Are stores closing down? Economic activity is one of the key drivers of rental housing demand and it can affect the rental market in unique ways. For example the current economy in Boston, Mass., is hot! Rental housing is in high demand, leading many renters to forgo amenities and perks in favor of securing a lease. This means that landlords can afford to make fewer concessions when negotiating.
3. Check occupancy rates for your area
Are the occupancy rates trending upward? Good! The stronger the desirability of a rental, or neighborhood, typically the higher the occupancy rate – and higher market rent. It’s a question of supply and demand. Factors that can affect occupancy rates include local millennial population, employment trends, housing supply, and new construction growth, rent prices, and the location and condition of the rental property.
4. Chat with a local real-estate professional
Talk with an industry professional about their take on the market or a specific neighborhood. Local experts (property managers, brokers, agents, appraisers, and lenders) are especially good at identifying the drivers of housing supply and demand unique to your market – jobs, local ordinances, building permits, zoning for a new apartment building, etc.
5. Use “rent per square foot”
Whenever possible use square footage as a benchmark for searching rent comps. This allows you to encapsulate into a single number all the subjective variables of rent, and provides you with a basis for comparison across different units, locations, amenities, and so forth.
6. Check your local apartment or rental-housing association
These are great resources for research. They may provide information about local rent levels – past, present, and future. This is especially important for real-estate investors and developers.
Making sure your property is renting at (or close to) fair market rent is as much of an art as it is a science. However, with the 6 tips for setting rents along with good current and historical rental data and a thorough understanding of the local market and market conditions, you can set rents with confidence!