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Whether you’ve bought a property for passive income or you’re looking to rent out your home after moving, determining how much to charge for rent can be a daunting task. There are a number of factors that need to be taken into consideration before you list your rental property in the classifieds.
When figuring out how much to charge for rent, a good place to start is by determining the market value of your home. One option is to use a website like Zillow. However, if you want a more accurate assessment of your home’s actual worth, you may want to find a home appraiser who will take into consideration things like the condition of your home, local sale prices, and where your home is located.
On average, the amount you charge for rent should be within 0.8% to 1.1% of your home’s value. However, there are additional considerations that need to be made as explained below.
In order to avoid over or under pricing your rental, it is important to assess how much other landlords are charging for similar properties in your area. You can do this through various websites such as trulia.com, Rent Zestimate on Zillow, rentometer.com, or Craig’s List.
Be sure to look for rentals that have similar square footage, number of bedrooms and bathrooms, and amenities. Also, try to find rentals that are in the same, or similar, neighborhood within a comparable distance to shopping and restaurants, are part of the same school district, and have a similar pet policy.
Don’t forget to factor in additional expenses such as repair costs, property taxes, HOA fees, homeowners insurance, and if applicable, utilities. Over a year, maintenance may cost 1% of property value. Therefore, you should look into setting aside 50% of rental income for repairs.
If you pay for any of the utilities, be sure to get an accurate estimate of the monthly charges and incorporate them into the rental fee. If you have a pet policy, consider factoring in the additional cost of repair or replacement for items such as carpet and lawn damage. If your home is under an HOA, remember to include your monthly HOA fees.
An additional consideration is what you hope to achieve by becoming a landlord. Are you trying to maximize profitability? You may need to pinch pennies and do some in-depth calculations to make things work. Are you trying to avoid any and all landlord drama? Consider working with a property management company.
Remember, as you experience tenant turnover, there will be market fluctuations. The rental market may change, housing prices will change, your costs will change, and even your financial goals as a landlord may change. It is important to remain adaptable. Be cognizant of fluctuations like rental prices peaking in late spring and summer.
Being a landlord is tricky and can be very stressful. Don’t want all of the headaches associated with managing your rental? Get the benefit of Ferguson Property Management’s combined decades of experience. You can trust us to take care of your home with the same attention you do.
Download our FREE guide, “Should I Become a Landlord?” for additional considerations before placing your rental on the market.