For newcomers to the rental business, particularly for landlords with just a few units, setting an appropriate rent amount can be a daunting task. There are plenty of factors to consider when deciding on the amount to rent a house or apartment for–you want to be competitive, while also covering costs (and ideally making a profit). Here are five main factors to consider when making your decision.
1. Check out the competition.
Once you’ve acquired a home or apartment that you’re planning on renting out, it’s time to do some research. Using Craigslist, SeattleRentals.com, or another site that posts rental real estate listings, check out the asking rents on comparable units in your neighborhood. You may even wish to take some walks around the neighborhood, checking out the units that are located nearby–that can give you context for the rentals that have particularly low or high asking rent amounts. Chances are, the rent you’ll ask for will end up being comparable to other units in the area.
2. Adjust for desirability.
We all like for things to be neat and easy; but there can be no blanket decisions when it comes to setting rent amounts. It’s important to take the factors that differ from unit to unit into consideration when making your decision. Say you have two identical units on the first and second floors of a building, with the upper unit enjoying a pretty good view of Lake Union, while the first floor unit’s view is obstructed. It may be tempting to price the units identically; but if you do so, people are likely to pass on the ground-floor unit, considering it overpriced, while the second-floor renters are enjoying a great deal. Differing amenities, closet space, square footage, and other differences must be taken into consideration when pricing multiple units.
3. Keep your costs in mind.
Hopefully it goes without saying…but it’s so important, we’ll say it anyway. It is imperative that you have your costs well in mind when your price your rental unit. If you have a mortgage on the property, that payment must be covered; then there are maintenance and operating expenses to consider. Note that while landlords won’t necessarily make a profit their first couple of years out, if this is the case, the property should be working for them in other ways–paying down the mortgage, conferring tax benefits, etc. If the unit’s not working for you, you may have over-invested.
4. Follow the market.
Rental real estate is in essence a local business; as such, landlords should follow both local and national industry news and trends as they are reported. Understanding your market is key to ensuring the rents you set are both reasonable for prospective tenants and profitable for your business. Luckily, the rental real estate industry is easier to follow than ever now; constant news articles, national resources like the NAA, and local consultants such as Dupre + Scott provide us with all the rental info we could ever need, tracking trends and reporting on different market factors. The information age is good for all of us one- or two-unit landlords out there!
5. Continue to reevaluate.
The truth is, the housing market changes–and it changes quite often. A rent you set on a unit in January 2013 may simply not be appropriate for the same unit just a year or two later. If you follow the market, when you sit down to reassess asking rents on a unit that is about to go up for rent again, you’ll have done your homework, and it will be fairly easy to determine whether the rent needs to change, or if it can remain similar to what it was before. Ideally, your asking rent will go up, based on vacancy, demand, and neighborhood popularity; that’s what we’ve seen quite a bit in the past few years. But you must also be prepared to lower the asking rent if the rental market has taken a dip. Reevaluating asking rents as the market changes will keep you–and your apartments–in the game.