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Factors to Consider in Setting the Rent for Your Investment Property


How much to charge? Well there are basically three things to consider.

First:

Supply – how many properties are there like yours on the market? If there are a lot of vacancies around, your property will have a lot of competition, and that’s not good for rent prices.

Second:

Demand – is your area hot? Or are people moving away. Popular areas draw tenants, which is good for rent prices.

Third:

Your interests – what do you want to accomplish? Quick rental? Highest price? Largest slate of candidates to choose from? Generally speaking, the lower you set the rent the more picky you’ll be able to be when it comes to picking through the applications.
The easiest way to assess where supply meets demand is to simply look at what other properties in your area are renting for. A real estate agent can tell you what other similar homes have gone for recently. Another thing I sometimes do is drive the area and call a couple of for-rent signs and see what the landlord is asking. Your local MLS system is a good source of information. And increasingly other sources are popping up.

Bear in mind though that setting the initial rent is not the only issue. Once you set the rent and sign the contract the next challenge is to maintain your rent. Inflation will constantly be increasing your expenses, and property appreciation will be increasing your tax burden. In order to maintain your property’s profitability you’ll need to periodically increase the rent that your tenant is paying. I like to plant this seed from the moment that I sign the initial rent; it sets the expectation (a reasonable one) that prices go up, and that rent is no exception. That way when they renew at the end of the term there are no surprises. A good tenant is valuable. If you’re like most landlords you will sometimes opt not to increase the rent, but eventually you’ll need to. This is yet another reason that maintaining a cordial, professional relationship with your tenant is good business.

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Posted by John in Blog on 6 November, 2009 | 10:31

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