This is the golden question for landlords, and the wrong answer could cost you valuable time and money in the long run. Charging the appropriate amount for rent is a crucial aspect of renting out a home. If you price your rental property too high, it could sit unoccupied while your expenses pile up. If you price it too low, you may not cover your costs and end up losing money on your investment. The key to knowing how much to rent your house for is finding the fair market value of your home – high enough to cover your expenses, but low enough that tenants are comfortable applying. 

You may have come across the “1-2% rule” before. It suggests that landlords charge 1-2% of the home’s value for rent. In theory, a home valued at $200,000 would rent for $2,000-$4,000 per month. Unfortunately, much more goes into deciphering a home’s rental value than that. Only using this rule could do you a disservice, as you can easily price the home too high or low for your area. The 1-2% rule can be a basic guide to get you started, but more research is required to determine fair market rent.

Evaluate the rental market in your area.

If your rental property is in a rural area, it will not have the same rental value as a house that’s in the middle of a city. That’s why it’s important to compare your rental to others that are similar within your area.

Look for homes that are similar to your rental in these aspects:

  • Square footage
  • Garage space and parking availability
  • Interior features (laminate countertops vs. granite, installed appliances vs. appliance hookups)
  • Location
  • Community amenities (community pool, dog parks, walking paths)
  • Proximity to major metropolitan areas and desirable goods and services

Finding rental homes comparable to your own can give you a good understanding of what your potential tenants are expecting. You should charge rent that is close to the rent of similar properties in your area. If your home has a washer and dryer unit while another comparable house does not, you may be able to charge slightly higher rent. On the other hand, if your property doesn’t have convenient parking while another similar rental in your area does, you may offer slightly lower rent than the other home.

Note: Market evaluation doesn’t end once you’ve initially priced your rental. Even after you’ve decided on an amount to charge, keep an eye on your local market. If you notice rental prices are shifting, it’s a good idea to re-evaluate your own to ensure you’re in line with your market.

Consult a local professional.

Evaluating the market on your own can be difficult, particularly if this is your first rental property. Consider consulting local realtors and property management companies. Outside, professional perspectives are extremely useful, and can save you time and frustration in the process of deciding what to charge. Experienced realtors and property managers have worked within your housing market, some for decades, and can offer insight into the value of your property and the nuances of your rental market. This includes specific knowledge of:

  • Desirable price points in your market
  • Rental trends, such as which seasons typically support higher rent
  • Appealing goods and services close to your property
  • Amenities or features that tenants will pay higher rent for

Some property management companies offer a rental analysis based on their own research of the market. Essentially, they complete a market evaluation on your behalf, including information they have from successfully renting properties comparable to yours.

You can also speak to other local landlords. They may be able to share their experience of what tenants are willing to pay to rent in your area.

Use rental calculators and HUD estimates.

There are excellent tools available online to help you get an understanding of your home’s rental value. Zillow offers a rent calculator on their website. You’ll have to plug in your email to receive the estimate, but you can easily unsubscribe from the promotional emails that follow if you wish. Rental calculators should only be used as an estimate, as they do not have the full picture of your property.

You can also use tools provided by The U.S. Department of Housing and Development (HUD). HUD releases their calculations of fair market rent annually, as well as predictions for the current year. For example, if your property is located in Minneapolis, it is included in HUD’s Minneapolis-St.Paul-Bloomington metropolitan area. According to HUD’s analysis, fair market rent for a two-bedroom unit in this region is $1,329.

Keep in mind that these HUD estimates are based on data that spans over several counties and is not specific to your property’s amenities or exact location. They do not separate unit types, and a two-bedroom house in a central location will likely support higher rent than a two-bedroom apartment in that same area. Use the HUD calculations to get a basic idea of fair market rent within your metropolitan area and use your local research to decide your final rental price.

Interest in your property is the ultimate guide to fair market rent.

If your rental property isn’t generating interest, it isn’t priced correctly, even if all your research indicates otherwise. Part of evaluating rental prices is being flexible with your expectations and making changes when necessary. If you do the work to find the right price, your investment will pay off and your property will consistently attract the right tenants.

Call Now Button(612) 822-4663