If you have decided to rent a home or apartment for the first time, you are probably concerned about setting the right rent. The rent price of your property has to be attractive to potential tenants and bring profit to you. So, it is important to understand how rent is calculated.
Fixing rental prices for properties takes some time and research. Landlords consider the value, location, market demand, maintenance cost, and special property features. Also, they take the help of property managers and agents to determine a rental price.
If you are a landlord or a tenant who wants to understand how property rent is calculated, you are in the right place. In this article, I will talk about the factors influencing the price of a house or apartment flat.
Important Factors To Calculate Rents
If you are determined to rent your house or apartment, you have to start fixing a rental price. The rent should reflect the worth of your property and attract the appropriate tenants. Here is how landlords calculate rents:
Value Of The Property
Finding out how much tenants should pay per month can be easily calculated. Landlords often charge 0.8% to 1.1% of the property value as rent per month. For example, if your property price is $200,000, tenants must pay $1,600 to $2,200 per month as rent.
However, this method may not work all the time. Sometimes the rents turn out to be too high using this method.
Consider the market value of other properties like yours. The rent should not be too high compared to similar properties.
Next, research the market to find out a perfect rental price. You have to adjust the rent based on other factors like features, design, location, amenities, etc. However, calculating basic rent through property value is a great way to start.
Research Similar Units
Landlords research similar property units to fix a rental price. You can survey your locality and check the rent price of houses like yours.
Nowadays, it has become easier to compare housing units. It is easier to search rent prices through websites like Zillow, Craigslist, and Trulia.
You can search for housing units, setting location, square footage, the number of bedrooms, bathrooms, amenities, and age of the properties. List similar units like yours and analyze their rental cost.
Try to understand if you can ask for the same price or adjust the price based on your property’s amenities.
Also make sure that the units you are researching are not income-restricted rentals.
Location Of The Property
Next, consider the location of your property. Houses or apartments in convenient locations are always in high demand. When it is easy to move around from one place to another location, people become willing to pay more rent for the property.
Your property might be near a school, college, shopping mall, hospital, local swimming pool, parks, gym, or near public transport stations.
Easy travel to these locations makes a property unit quite attractive to high-quality tenants. Families value the property for its accessibility. Thus, you can fix a high rent for accommodation situated in convenient locations.
Consider Available Amenities
A house or apartment becomes more attractive when it offers special amenities. There can be an on-site parking lot, a swimming pool, a tennis court, balconies, or any outdoor space.
Even simple washers and dryers can boost the rent price. Tenants appreciate laundry facilities in an apartment building. They are also ready to pay high rents for nearby on-street parking facilities.
Therefore, apartments or houses with more amenities have high rental costs than other properties nearby. Landlords adjust the cost of the facilities with the property charge to fix a rental price.
Adjust Rent Based On The Market Demand
When the economy is bad, people cannot afford to buy their own houses. Thus, they look for renting houses and apartments. Landlords often take the opportunity to increase the rent price.
However, smaller and cheaper properties became more popular during the economic crisis compared to large and expensive properties.
So, a large apartment or house may not be in high demand during a financial crisis. In this case, landlords of large properties often decrease the rental cost to attract tenants.
Then again, before the new school year begins, the demand for large houses or apartments increases as families move in. Thus, the rent price for properties can be increased.
In short, property rent price is lowered when the demand is low and goes up when demand is high. You can set a higher rental price once your property is in demand.
Consider Maintenance Cost
As a landlord, you are renting your property obviously to make a profit. Even if you rent your house or apartment to the tenants, it is still your property. Thus, you have some costs to bear. You must set a rental price that is profitable even after paying for the maintenance costs, taxes, and fees.
The money landlords make from the rent is also used to manage the following expenses:
- Maintenance cost
- Taxes
- HOA fees
- Management cost
- Cost of vacancy period
- Mortgage payments (If applicable)
After paying for the costs, you must make a good profit from renting the property. Calculate your rent according to property value, local value, and current market demand to find out if you are making a profit from your renting business.
Now, estimate how much of the rent will be used for maintaining the property every month. If you make little to no profit, you should increase your property rental cost a bit.
Talk With Agents And Property Managers
Landlords often take the help of property managers and real estate agents to know what rent they should charge for their property. You may hire a property manager to oversee your property.
It becomes the property manager’s responsibility to determine the property rate, renting price, handle tenant relations, and administer maintenance.
If you do not have a property manager, call a local property manager and learn about the rental cost of similar properties in your area. They understand the market value better, so they can give a clear idea.
Similarly, landlords seek rental and real estate agents with extensive knowledge about the renting market. They can visit your property and assess its positive and negative aspects.
They can tell if tenants will be interested in the property’s size, design, location, and amenities. After that, you can fix the rent price with their advice.
Things To Consider Before Renting A Property
Before you calculate the rent, you have to consider a few things.
First, check your property to make necessary adjustments. Fix things and make them ready for prospective tenants.
Then try to add any feature to make the home/apartment appealing. These adjustments will cost you money but are necessary for attracting tenants.
Also, are you ready to become a landlord? Renting one of your properties, like a house or apartment, is not a simple decision. As a landlord, you must manage tenants and bear maintenance costs whenever needed.
Some tenants can be unpredictable. So, you should be ready to face unexpected expenses.
Finally, decide what kind of tenant you want to rent your property. The tenants should be able to pay the rent and other bills regularly.
So, you must choose renters carefully. Remember, you are renting your property for profit. Your property is your investment. It should not cost you extra money or trouble.
Also, if the property is in an area of crime, be sure to look at renters insurance.
Conclusion
So, this is how rent is calculated for a property like apartments and houses. Renting property is a competitive business. Landlords and property owners come with different ways to fix rental costs to attract tenants.
Therefore, you have to determine a rental cost that shows the property’s true value and attracts the right tenants.