January 15, 2010, Newsletter Issue #167: How to Set the Rent for Condo Rentals

Tip of the Week

It is tempting, as a landlord, to have a wish list for the price you will charge for your condo rentals or to use some figment of your imagination to set a price. Resist these urges. Setting the proper price for condos for rent takes some thought and time. You should always seek a positive return on your investment just as your future tenants will want a positive addition to their quality of life by renting your condo.

There are two commonly recommended methods to determine the optimum rent for your condo.

Return on investment. You should know – or learn – what it costs to own and maintain your property. This number should include your mortgage payment, insurance, taxes, management fees (if applicable), and the profit you hope to make on your rental. The rental income you need, before you enjoy a profit, is typically called your “break even” point. Your ideal is to add the percentage or amount of profit you’d like to make to your break even rental amount.

Unfortunately, this approach must be used with real world understanding. Should you need to receive $1,100 per month to reach your income goals, but a comparable condo for rent currently commands only around $950 per month, you may have to adjust your expectations.
Market analysis of comparable properties. You must be honest with yourself. Examine what the rental prices are for comparable condominium rental properties in your area. The key word here is “comparable.” For example, if your condo is in a complex that has many water views, but yours provides the view only from a corner of the deck in winter, you should not expect to generate the same income as condos for rent that have water views from living, dining, and bedroom areas.

Understand that the same tenants that are seeking a condo rental in your neighborhood may view yours and compare the quality, appearance, and amenities offered for the condominium rental price being asked. Always remember, the real estate rule that never changes: The market (the renters and/or buyers) determine the price of purchasing or renting real estate. Know what the market rate is for condos for rent in your area and set your price in relation to those conditions and in light of the return on investment you want.

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