Ask any property manager and they’ll tell you: setting the right rent takes skill and finesse.
For many property owners, deciding what rent to charge seems pretty subjective, but there is a science behind it.
Apply this formula to decide if you are charging enough for your unit:
Set Your Minimum
- Compute your hard costs for mortgage, insurance, taxes, etc.
- Add in your routine and reasonable maintenance costs.
- Talk to your financial advisor to determine what your profit margin needs to be to meet your financial goals -are you trying to pay down the mortgage, increase your incremental cash flow, planning to sell soon?
Find Your Maximum
- Research the neighborhood. Find the average range, or the cost per square foot for comparison. The Internet makes it easy to find ads. Listen for prospects to tell you if there are better deals around your area.
- Compare what you can offer against the neighboring properties. Are you closer to a bus line? Newer appliances? Are you offering a different lease term?
- How scared are you to have the unit vacant? If you have a high ‘fear factor’ drop a little lower than the competition.
It’s common for landlords to underestimate the rent they can charge. How can you tell if you got it wrong?
One tried and true method is the “phone test”.
If you get an avalanche of calls as soon as your ad hits, especially from local renters, you may have come in way too low. If you get nothing, you may be too high.
Be careful, though! If you are planning to adjust the price in your ad, do it BEFORE you talk to any prospects or show the rental. There’s a danger of committing yourself legally to the advertised price.
See our feature, Eviction Advice You Can’t Afford to Ignore.
American Apartment Owners Association offers discounts on products and services related to your commercial housing investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.
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