How do landlords calculate rent

Deciding to rent out your house rather than sell it might make sense for various reasons. But allowing someone to rent your home, even temporarily, is a big deal.

For one, are you ready to become a landlord? Regardless of how responsible your tenants might initially seem, they could end up destroying your home or bringing down its overall property value. Turning your home into an investment property could be a financially risky move as well. Landlords can survey neighboring streets and zip codes to determine what properties are renting for and why. Popular online sites offering rental units as well as a local real estate agent or appraiser's office are all good places to do research as well.

Once a landlord has determined the area market rent based on neighboring properties, she can confirm this rate with the Housing and Urban Developments annual fair market rental report. While some landlords may choose supply and demand as the sole factor in arriving at a rental rate, others may place their rates somewhere in between the neighborhood market rate and HUD's fair housing rate. Remember, landlords have competition and there are a number of factors to consider in how marketable a unit is to potential tenants, including location, amenities, lease term and accessibility to public transportation.

Being a successful landlord starts with planning. Landlords who create a marketing plan and have an exit strategy will have a better idea of how to price their units for maximum occupancy. Using realistic and conservative numbers in your calculation will give you a more reasonable view of your ROI. Be aware that lower-end properties, which often look more promising on paper than mid-range and higher-end properties, can have more frequent tenant turnovers and higher repair costs.

Home Guides points out that since rental markets can vary by city and neighborhood, stacking your property against comparable properties can tell you if the predicted ROI measures up against average returns in a particular market. You can use online property agencies such as Zillow and Trulia to find median sales prices and average rental rates to calculate average returns on a local level. If you. By setting your rent in line with market value, you can raise the rent on your tenant without risking that the renter will leave.

We will also note at the time of this writing that the rental market is strong and continues to favor landlords , which has enabled rents to grow consistently over the past few years. Most renters want to stay in the same neighborhood, and chances are, once they look around and see that comparable units have the same or higher rents, they will end up staying put. If your new rent price is close to or below the average price of similar units, your tenants will still likely feel as if they are getting a deal and will more likely accept a rent increase without complaint.

However, certain upgrades such as plumbing fixtures and stainless steel appliances can boost property values and aid tenant retention. The rent of a property is typically between 0.

This method, of course, will be affected by the actual price range of your property. Charging too much could scare away good tenants, and you will want to focus on renting to only the best tenants.

One of the things that most landlords do when trying to decide what to charge for rent is to check out what other landlords in the area are charging. There is, however, one common mistake that is made when using this technique. When you compare rent between properties in your area, you need to ensure that you are comparing similar properties.

Finding the balance of how much to charge for rent is easier when you are checking out properties with similar characteristics in the following areas:.

If you charge too much more than local properties with similar characteristics to your property, you will be hard-pressed to find a high-quality tenant for your property. Analyzing the local market can help you find the right balance of value for tenants and profits for your business. Ask them if they could consider your price to be reasonable or not. Despite the information that you gather from 1 and 2 above, the rental value of your property could change drastically due to demand.

Demand can affect the rental cost of your property in both positive and negative ways. These are some of the most common effects of demand that you are likely to see:.