April 10, 2009, Newsletter Issue #127: How to Calculate What to Charge for Home Rentals

Tip of the Week

If you’re a relative newcomer to the home rentals industry, this question may puzzle you. Sure, you know what your mortgage payment, real estate taxes, insurance, and water charges are, but does that relate to what to charge for rent? The answer is both yes and no, to varying degrees. First, become familiar with the two primary methods used to set rent prices.

Return on investment. Calculate your monthly costs, including mortgage payment, taxes, insurance, water, and an amount for maintenance. Add an amount you’d like for monthly profit, too. The resulting number is what you might like to charge to rent your property. That may or may not be possible depending on the second, more accurate method of determining rental amounts. Market analysis. This method should always be used to learn about your competition. And you do have competition. Knowledge is power; use it to your advantage. Learn what similar properties in your area cost to rent. The keywords are “similar” and “your area.” If your rental home is 2,200 square feet, compare it with other similar sized homes of comparable design. Do not bother analyzing 3,500 or 950 square foot homes. Only compare similar home rentals in your immediate area as that is where your prospective tenants want to live. You don’t want to set your rent too high or all you’ll have is a vacancy that can quickly turn into a money pit. Setting the rent too low will attract more potential tenants, but you’ll have to screen more carefully and more often. And you might still lose money. Set your rental price within your current market in your area and you’ll locate just the right tenant.

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