Landlords are in constant tension when it comes to setting rates. You want a competitive rate that will retain your excellent tenants and keep them renewing their leases; after all, you save money every time you don’t have to look for someone new.
However, you don’t want to be the lowest rent in your comparable market, since you are leaving money on the table that way when the market shows that good tenants would gladly pay more. So how do you make the right call with how to set your rental rate and when to raise it?
The keys involve research and understanding of what is going on in your nearby area, especially with properties that boast comparable amenities. A little research could lead you to lower your rent slightly and retain more tenants, or raise your rent and boost your profits.
Conduct a Market Analysis
Here are some of the questions you should answer for your property market analysis when considering how to price your rental properties for tenants.
How many rental homes are available in your market?
At various times of the year, there are different rentals available, but overall, you should have a good “lay of the land” when it comes to the local rental homes in your area. Are there always property owners trying to get properties rented, or is every unit snapped up immediately?
Create alerts online that allow you to track how quickly rentals are being leased, and how many overall tend to be available at a time. That way, you can time your rental ads to become available at a lean time when more people will want the property.
What is the split between single-family and multi-family rental homes?
You want to know whether your rental market leans heavily toward single-family residences (SFR) or multi-family rentals (MF) to understand the value of your property in this market. In general, SFR homes receive higher rents, but there are many factors (age of the property, demand, potential amenities at an MF property) that could impact that price.
What is the amount of vacant versus occupied rental homes in your area?
A large percentage of vacant properties generally means that lowering your rent rate is going to help you gain and retain a great tenant. Remember: nothing is more expensive than vacancy, including having a fairly low rent. By establishing a “Goldilocks” rent—not too high, not too low, just right—you can make sure you aren’t one of those vacant properties.
That being said, there are housing markets where no vacancies stay on the market more than a day or two! In those places, raising your rent to compensate will have virtually no impact on you gaining a tenant—they will probably be grateful to have gotten a spot! Knowing these numbers helps you make a logical rental rate choice.
What is the average rental price per square foot in the local market?
This metric helps when you have trouble finding comps, or comparable propertiesthat can serve as a good way to set your rental rate. If the other properties aren’t just like yours, divide the rent by the square footage of the apartment; this can help you decide if you are charging a good rate.
Be aware that the higher your square footage, the fewer people will be willing to pay for that “next” square foot. Basically, there’s a plateau at some point where people will prefer a smaller place over a higher rent.
What is the average application fee in your market?
Application fees are how you offset some of the cost of finding new tenants. Make sure yours aren’t prohibitive but are in line with those in the market.
Work with a Property Management Company
A lot of these research steps require some insider knowledge and a decent amount of time to get the pulse of the market. There’s an easier way!
A reputable property management company already makes it their business to know how the market looks so that all of their properties under management are bringing in the best possible rent without compromising the quality of tenants that will want to live in those properties.
In the Uptown Dallas market, we can provide unparalleled insight to set that perfect rental rate. Contact us today to have a free consultation about what our professional property management firm can do to strengthen your rental property business. Click the link below to get started!