How to Know How Much Rent to Charge For Your Rental
How to know how much rent to charge for your rental is a common question among property owners who are renting out a property for the first time. In some cases, you could have a lot of experience with residential properties, but don’t really know how to price a commercial property. In the end, there are a lot of similarities between the two. Here is a closer look at some variables to consider when setting your rental rate as well as how to double check your decision.
To set a baseline number of how much rent to charge for your rental, it is vital that you also know your expenses. To make sure that you are not going to end up losing money, you need to know 3 different expenses: maintenance, taxes, and insurance. If you are renting a home and the tenant will be taking care of the basic maintenance such as lawn care, then you should still add in a buffer because you never know when a drain is going to back up and you will need to pay for a plumber. It is those unexpected expenses that you need to consider. The taxes will change from year to year so if you are going to give your tenant a multi-year lease, you should look back 5 or 10 years and determine what the average rise in taxes was. Then add that additional amount into the rent. Finally, you need to add in the cost of property insurance.
When all of that information is added together, you will have the absolute minimum that you can accept (assuming you aren’t paying back a loan on the property) and still break even. From there, it is your job to get a good feel for the surrounding market. The problem that a lot of people have is actually finding out what that number is. In general, you have two basic options. The first is to track rental ads and the second is to do your own rental survey.
If you are tracking ads, then you will need to determine what geographic area you should limit the search to. You also need to look at specific characteristics that are similar between the properties being advertised and your own. Along with space and number of bedrooms/bathrooms, you should also look at any other similar characteristics such as the age of the home and square footage.
To really get a good feel for your local market, the best option is to go out and do a survey yourself. Pick a 3 or 4 square block area and start knocking on doors. If you let people know who you are and what you are doing, they will normally be happy to let you know what they pay in rent. Some people worry that if they do this, they will get inaccurate data. For the most part, if you actually talk to the renter, the data will be spot on. It will also let you know what (if any) other utilities are included in the rent as well.
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