Have Fun - How To Set The Right Rent
| Have you ever wondered if the rents you charge for your
rental units are in line with the marketplace? Does it take a long time
to rent up your property or does it rent in a day?
The worry, of course, is if you have more phone calls than you can handle, you may have priced the property too low. If you have no calls, maybe you're units are priced too high.
How do you find the best rates?
A good place to start is to look in the local Sunday paper. Notice that the classified section is divided by geographic area. Location is the most important guide to value for a renter. The same 3-bedroom, 1-bath house will rent for an amount in one part of town and another in part something else. Most people look for a location close to work or close to schools for themselves or their children. Many people also want to live in hip or trendy neighborhoods or in neighborhoods where they grew up in, close to friends or family members. Older renters like to live close to shopping and medical suppliers, like doctors or hospitals. Some renters want to live close to major arterials or freeways to speed up their driving around town.
Every city and town has a different rental patterns, and in many cases those patterns relate to geography. You have probably heard of the "West Hills" or the "south part of town" or the "Northwest neighborhood." Sunlight drives value. The brighter the area and the better the views, the more motivated people are to live there.
The income or budget of the renter will also drive the decision of where to rent. Most tenants have limited funds and at the same time they have needs they want to fill with those funds. Some tenants want a swimming pool, some want a specific neighborhood and some just want a small studio while others need more room. In many areas square footage of the rental will drive the rental value. In other words, the bigger the apartment or house, the more money you will get.
Rental Rates Have an Upper Cap
Remember that when 67 percent of the nation are homeowners and only 33 percent are renters, there is a level at which renting a house does not make sense. Few will want to rent especially when the interest rates are low, builders have overbuilt, and financing with little down is very attractive. Also remember Uncle Sam helps ownership with interest deductions and property tax write-offs.
You could join the local apartment owners association to share rental rate information with other landlords. You will find that local trends will affect you as well as others in the marketplace. If you think you have set the rent right and the property still is not renting, maybe the property is facing an economic slump that is affecting all owners. Or maybe the lawn needs to be cut, or your "clean" is not as clean as the tenants would like it.
Maybe you are advertising in the wrong place. Is it is possible you bought your investment property in the wrong location? Just last week a tenant looked at one of our properties and was accepted as a tenant -- but decided to turn down the unit because it had ceiling heat and very high electric bills.
Basic amenities also drive the rents. Dishwashers, washer/dryer hookups (or a convenient laundry room), off-street parking, and cable TV hookup are some basic examples. If those are not available, consider renovating or find another angle that will attract tenants, like hardwood floors or views. Most tenants, being reasonable, are not attracted to dilapidated settings.
The magic of setting rents lies in your ability to track the market, which is fairly easy now with the Internet -- and be in tune with it. Great marketing and advertising will also have an impact on your ability to rent. It is important to keep track of market statistics. Factors like new job creation, new people moving into town (or out of town), rent control (which in some areas may limit your ability to charge market-rate rentals), the number of units in the pipeline, and new homes under construction will help give you a feel for the marketplace. This will let you know how to time your leases and their expirations as well as your rent increases. Sometimes in a weak market you need to offer some concessions like free rent, a TV, or lower move-in costs to attract tenants.
You can always set your rents a little high and see if the phone rings. It's easier to lower a rent than to increase it. It's smart to annually review the marketplace and stay in touch with changes in the marketplace. Nothing replaces the time you take to inspect the property and decide that this is where you could live.
And don't cut corners. Remember happy tenants stay longer and will
pay rent increases.