If you are a new landlord, you probably ask yourself the same question all new rental property owners ask: "How much can I rent my house for?" Estimating rent for a home or apartment can be tricky. Of course, you want to maximize your rental income. At the same time, there are many variables to consider that affect the rent price. Factors affecting the monthly rent price include the health of the rental market, property type, number of bedrooms, location, and amenities.
Getting an accurate rent estimate is vital for whatever type of investment property you have. It doesn't matter if it's a single-family home or a large multi-family building—the rent you charge impacts your bottom line. Collecting rent from tenants is how you cover mortgage payments, maintenance costs, property taxes, and insurance. And, you still have to make a profit from your rental business.
But you also have to think about the rent price from a tenant's viewpoint. Prospective tenants are looking for a great deal. They want to pay the lowest rent possible for the area and have access to excellent amenities. And the chances are that they have several options to consider.
What can you do to estimate the optimal rent price for your rental homes while maximizing profits? This article looks at the best ways to turn your rental business into a successful venture.
Accurate Rent Estimates Maximize Profits
Before listing your rental property, it's important to remember a vital fact: higher rent doesn't mean more profits. To get a healthy return on your investment, you need to reduce vacancy rates to a minimum, find good tenants, and maintain your property.
It never makes good business sense to sign a lease agreement with a high paying tenant who causes damage or never pays rent on time.
Also, setting rental rates at a competitive rate can dramatically cut vacancy rates, maximizing rental income.
Apart from estimating rent correctly, boosting profits on rental units involves regular rent collection and thoroughly screening all potential tenants.
Using a rent collection app such as RentDrop is one way to maximize return on investment properties. The rent app allows landlords to collect rent online and give tenants a choice to set up automatic rent payments. Additionally, you can use features such as tenant screening, charging late rent fees, rental application processing, and listing vacancies on rental sites to help maximize profits.
Rent Estimate Calculators to Set the Rent Price
The starting point for setting the rental price for your property is a rent estimate calculator. This tool evaluates the average rental rates for similar properties in the neighborhood. The result helps you know how to calculate a fair market rate when you advertise properties on rental listing sites.
However, it is sometimes better to do your own search on comparable units in your local market. You can get tremendous insights into the rental market by looking at similar rental properties, seeing what's on offer, and calculating average rental rates.
When estimating rent, always remember to look at comparable units. For example, an apartment in downtown New York will command a higher rent than a single-family home in a small rural town. Even within cities, rental rates vary depending on the neighborhood and proximity to amenities.
After you have a list of rental comps, it's time to compare what the rental homes and apartments include. For example, say your rental apartment also includes a parking space, washer/dryer, and two bathrooms, but similar units don't. You can charge a higher rent than the comps. However, if you've fewer amenities to offer, you will have to adjust rent accordingly.
Other Factors Affecting Rent Estimate
Getting the rent price right for your investment rental property is just one way to maximize profits. But there are several additional factors that can increase your rental income. Of course, some of these factors, such as the number of bedrooms, square footage, and location, are probably impossible to change.
Here are some ways you can increase rental revenue and maximize profits on your investment properties.
1. Screen tenants thoroughly
Before signing rental agreements with prospective tenants, spend enough time doing background checks. You should run a credit report, get references from landlords on rental history, and check any criminal background. Letting a bad tenant into an apartment is costlier than having a unit stand vacant for a month. Evictions are expensive and will cost you time, money, and lost sleep.
2. Avoid vacancies
Keeping rental vacancies to a minimum is an excellent way to boost rental revenue. One way to find renters for your units quickly is to use property management software. This helpful tool for landlords posts vacant unit listings to the top rental websites. You should also include high-quality images and a well-written description to attract many applicants.
3. Allow pets in your rental units
Another way to reduce vacancies and attract more tenants is to allow pets. Many tenants who are pet owners are willing to pay more in rent because it's so difficult to find pet-friendly accommodation.
Of course, you may be concerned about damage. Therefore, it's vital to have a pet policy—for example, limiting pets to small breeds. Also, you can require a security deposit for pets and charge more for rent.
4. Offer extras included in rent
Some landlords can increase the average price they charge for rent by including certain utilities. You already know the average cost of utilities for your unit. If utility bills come to $130 a month, you could charge $160 in the monthly rent to include water, electricity, and heating. Also, you could include a broadband internet service to increase potential rent.
If you include extras as part of the rent, include specifics in the rental agreement.
5. Property renovations to increase the rental value
It can be worth renovating some rental units to justify a rent increase before advertising the property. Young professionals are often willing to pay more for rent if they can live in a modern, well-fitted-out apartment. For example, mismatched appliances, old-fashioned cabinets, and an outdated bathroom can turn people away—even if the month-to-month rent seems reasonable.
Here are some cost-effective renovations that can transform your property:
- Add new kitchen cabinet doors rather than installing a new kitchen
- Granite countertops can give the kitchen a contemporary look and will withstand wear and tear
- Install a walk-in shower instead of a bathtub
- Improve curb appeal
- Install hardwood floors
- Match the finishes of all your appliances
After making renovations, you must highlight these in your property listings. The modern home design and top of range appliances increase the perceived value tenants receive. They will then be willing to pay more each month, thus allowing you to increase rent.
Top tip: It's always wise to calculate the cost of repairs against the potential return on investment. Not all property upgrades result in increased revenue.
6. Use rent collection software
You can attract more potential renters for your rental units by allowing tenants to pay rent online. Popular rent collection apps, such as RentDrop, benefit landlords as well as tenants. Using a rent app gives tenants a choice to pay rent by debit card, credit card, or ACH bank transfers. Tenants can also set up automatic payments, make maintenance requests, and eSign documents.