Renting your home can be a great way to cover your mortgage bill, build equity and generate passive income. The challenge lies in setting a price that achieves these benefits without deterring tenants. We’ve listed 5 questions to consider when calculating an attractive rental price for both you and prospective renters. Read below!
1. How much is your house worth?
Speaking generally, a landlord should charge 0.8%-1.1% of their total home value in rent per month, 1% being the rule of thumb. For example, a $250,000 home should be rented at around $2,500 per month ($250,000 x 1%). How do you know how much your house is worth?
There are many free, online tools available for calculating home value, including Zillow’s “Zestimate” tool. Simply enter your home address, and Zestimate will provide you with a rough estimate for your home. For a more accurate assessment of home value, consider hiring a home appraiser who will tour your property in-person.
2. What are similar properties renting at?
One of the best ways to determine an appropriate rental price for your house is by looking at what other landlords are charging in your local area. Check Craigslist, your local newspaper, magazines and online ads to see what similar properties are renting at. Take it a step further and tour some of these properties, talking to other landlords and realtors about pricing best practices, face-to-face!
Zillow provides another great tool for calculating rent. Their local market reports tool allows you to view reports on local statistics like average and median list prices for your neighborhood and whether rent is going up or going down. Use this tool to get a better idea of what to charge in your area.
3. What do you need to cover costs/make a profit?
It is reasonable to expect a profit of 1%-6% when you are renting your home. In addition to covering your mortgage bill, make sure you are adding profit and covering these costs when calculating rent:
- Maintenance and repairs
- Vacancy costs
- Home owner’s association fees
4. What makes your property stand out?
Special features and upgrades can boost the value of your property and consequently, your rental price. Consider increasing your rent if your home has any of the following features and amenities:
- A prime location, close to a good school, food and entertainment.
- Updated appliances, new hardwood floors or new carpeting.
- An open concept floor plan.
- A balcony or backyard.
For more, read our blog 15 Things Tenants Look for in a Rental Property.
5. When will you be listing your property for rent?
The housing market is constantly changing due to changes in the economy, supply and demand. During the summer, more people are looking for rental housing to move in before school starts, creating a need. How you price your rent should depend on the time of year, charging more in the summer and less in the winter.
These questions should get you started on the way to setting an ideal rental price, one that covers your expenses while remaining attractive to prospective tenants. If you are unsure how much to charge to rent your house and you would like some help, contact a local property management company. They can help you get the most out of your property without the hassle.