Best Tips and Tricks For Setting an Effective Rent Price
The next step after taking fantastic rental listing photos is setting your rent price.
Rent price comes down to two crucial factors:
- Rent price determines tenant interest.
- Rent price impacts your bottom line.
The tricky part about rental prices is you have these two conflicting forces at play: having a price that is reasonable for tenants, but still high enough for you to earn a reasonable profit. You need to weigh both factors as you decide your rent price.
Considering how a tenant will react to a price is critical. They want a price that is affordable, fairly reflects the value they receive and makes sense given the neighborhood’s market. This is why it’s important to do market research and understand the value of your property, which we’ll go into further detail below.
On the other hand, rent is how you cover expenses, including mortgage payments, taxes, and repairs. In addition to covering these costs, you need to make a reasonable profit on your investment to compensate yourself for your time, hard work, and risk. Deciding a rent price that accomplishes all of these things doesn’t need to be as hard as it seems. We’ll guide you through every factor that shapes rent price.
How Do You Set a Rent Price?
Consider factors that affect price:
- Your rental unit’s value
- How you advertise your rental unit
- The current rental market
- Timing and the effect of seasonality on rent price
Sell Value Rather Than Price
You want tenants to be sold on the value of your rental property. But what exactly convinces tenants that your property is valuable?
The Way You Advertise Your Rental Property
Tenants justify higher prices when the listing is highly appealing. Your listing should grab attention with a great rental listing title, impress tenants with a well-written rental listing description, and amaze them with high quality photos. High quality listings are on popular, user-friendly listing websites, and thoughtfully crafted (you’ve been reading our Complete Guide to Finding Tenants, right?)
The connection between rental listings and value is the main reason why creating a thoughtful rental listing is so important- it reflects the value of your unit and has the potential to generate quality tenant leads.
What’s the Value of Your Rental Property?
Tenants also justify paying higher rent when the price fairly reflects value. Your unit has high value if you provide:
- New Appliances
- Hardwood Floors
- Open space
- Beautiful Views
- Close proximity to transportation
- Parking spot(s)
Tenants also see value in having a professional, helpful landlord. This is why mentioning that you use Rentalutions increases your unit’s value. It shows you have a strong interest in making renting as easy as possible.
Study Your Rental Market
Study your market before setting your rent price. Your market is composed of similar units in your location. Let’s say your unit has a washer/dryer and new appliances. If you find a unit near yours that has new appliances, but no washer/dryer, then examine their price, and make your price higher. The logic is simple: the more value you provide, the higher your price.
Prices can vary dramatically based on location, so limit your research to properties in your local market.
If you’re wondering how fair your price is compared to other units on the market, you can use Zillow’s Rent Zestimate tool. When you create an online rental listing with Rentalutions, we automatically pull in the Rent Zestimate for you.
The Effect of Seasonality on Rent Price
Just like any price in our economy, rent price is subject to the laws of supply and demand. High tenant demand warrants high rent prices. But how exactly can you know if demand is high? One way to know is based on timing. The number of tenants moving increases in the summer months, as you can see from the chart below. A higher number of tenants moving means there is a greater demand for rentals.
Peak rental season is May through August. During that time, rental demand is high and prices rise.
The US Census published Household Economic Studies about the seasonality of moves. Their research proves that the number of moves increases in the summer months, peaking in June. The effect of seasonality depends on location: northern and midwestern states are most drastically affected by seasonal changes.
Demand is high in the summer for the following reasons:
- It’s easier to move when the weather is nice. Seasonal swings in pricing are most drastic in cold regions of the U.S because it’s so difficult to move during winter months.
- Parents want to move during the summer months to avoid disrupting their children’s schooling.
Jed Kolko, Chief Economist at Trulia, describes timing and rent price well: “Prices rise and reach their annual high in May. Sales peak in June. Inventory keeps climbing as some sellers miss the sales peak, topping out in July and August.”
Therefore, if you are renting in the summer months, you can set your rent price higher. And aim for your rental agreement(s) to expire in the summer. If your current rental agreement expires in the winter, try negotiating a three to six-month extension to get on a summer vacancy cycle. Or try to sign a 15 or 18-month rental agreement to ensure your next vacancy falls in the high demand season.
How Rent Price Affects Your Bottom Line
Although it seems logical to set your rent price as high as possible, it’s useless to charge a high rent price if tenants aren’t interested in paying that price. It’s also useless if a tenant stops paying rent. That’s why having a solid tenant screening process is so important.
How does your rent price affect your bottom line? Your rent price is your main source of income on the property. It’s basic accounting: you need your income to exceed your expenses to make a profit on your rental investment.
Update Your Rent Price Frequently
Every time your rental agreement is up, reconsider all these factors and update your price accordingly. Rental market prices fluctuate frequently. If you don’t reconsider your rent price, you might miss the opportunity to raise your price (if market prices are increasing). Like any term and condition on your rental agreement, rent price needs to be thoughtfully considered each time you sign a new rental agreement.
Deciding rent price is a huge step: it determines tenant interest and affects your bottom line. If tenants think your rent price is reasonable, they will contact you. Chances are you’ll have lot of tenants interested in your unit, especially if you’ve been reading our Complete Guide to Finding Tenants.
Want help managing all of the tenants who contact you? Read Chapter Six below to learn how to Manage Tenant Leads with Ease. Or even better, sign up with Rentalutions to take advantage of our extensive knowledge and services, like collecting (your well-considered rent) payments online!
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