Renting out the property you bought for that purpose can sometimes be challenging, especially if you don't know what to charge for monthly rent. It makes sense to charge the market rate for your property or at least something very close to it. However, that rate might not be what you thought it would be when you made the purchase.
Rental prices can fluctuate, and if you charge too much, you'll have difficulty getting someone to choose your property over another property listed at a lower rate. You also want to be careful about setting the price too low because you want the best for profit and cash flow from your property.
The goal is to find the "sweet spot" in the rental price, where you attract quality tenants and cover the ongoing costs of owning the property, but you don't price yourself right out of the market and have potential tenants going elsewhere. So, how do you find that magic number? It doesn't have to be a guessing game when you understand how to calculate rental rate. Here's what you should consider.
Consider Comps When Pricing Your Property
Just like pricing a property for sale, you should also use comparable properties when setting your monthly rent. If you're priced similarly to other properties in your area, you know you're not undercutting yourself.
Property owners can also feel confident that rentals are not priced so high that their property will sit empty on the market. Understandably, you want to get as much rent as possible, but that only works if the property rents quickly and stays rented most of the time. Vacancies can be very costly for investors.
Make sure you're being fair when looking at the comps. If your property doesn't have some of the prominent features other properties have, like a garage or a big backyard, it will probably not rent for the same amount as those properties.
Look at Your ROI to be Sure the Rent is Enough
Another way to decide on the rent you'll charge is to look at the ROI you want and see if the rent will help you meet that goal. Your ROI is important, but it also needs to be realistic.
Even if you want to make more on your rental properties, it's crucial to consider all the factors that go into renting the property in the current location and market. For example, if you paid a little too much for the property, you might have a lower ROI for a while. The same is true if the rental market drops and rental prices fall.
Conduct a Rental Market Analysis
A rental market analysis is another way to determine how to calculate rental rates for properties. You'll want to incorporate several important factors into your analysis, including vacancy rates, pricing for other properties, market forecasts, and supply and demand considerations.
Then you can use that analysis to see where you really are with your rental property and charge the appropriate level of rent for the home based on current market conditions. Doing this increases your financial confidence and peace of mind when it comes to that specific rental property.
Talk It Over With a Property Manager
If you've been attracting poor-quality renters to your property, it's likely that you're not charging enough to bring in quality tenants. That's also true if you find that you're unable to cover your costs or you're actually losing money instead of making money on the property.
Raising the rent too high, though, means that tenants won't want to rent from you because they can find something just as nice for less money. That means your property will sit vacant, and there's no income from a vacant property.
Vacancies are also a concern because a property sitting empty is more likely to have a break-in, and if something goes wrong, there won't be anyone there to notice it. When a pipe bursts in a vacant rental, for example, it can be devastating and very costly. Therefore, keeping your property rented has more benefits than just income.
If you're struggling to find the ideal monthly rent amount to generate the ROI you need, a Philadelphia property management company can help! They'll look at the numbers, gather all the important data, and then work with you to decide on a rate you feel good about. This will help you rent your property faster and attract quality renters, so you can start seeing income from your investment.
The Best Philadelphia Property Management Experts Help You Set the Ideal Rental Rate
When it's time for quality Philadelphia property management you can trust to set the rental rates you need for success, reach out to us at Rentwell. Our experts can help you set the best rent amounts for your investment property and attract quality tenants to improve your returns and peace of mind! Contact us to learn about our services and how we help rental property owners reach their goals.