SETTING A RENTAL RATE
650? 1000? 1500?
Utilities? Yard Care? Pet Rent?
Yikes! Where do you begin?
Spinning from the last post about the 1% rule, we already know that the house needs to rent for approximately 1% of the total purchase price of the home. So, using our last example, if the home was $100,000 to purchase, then the home needs to rent for $1000/month.
You have to understand your rental market to know if your home can command this price. This is where you must become a student in your market. You need to invest time researching your market. There are plenty of rental sites to choose from. One of my personal favorites, is zillow.com, but there are plenty of them to choose from. Look around the area you are considering purchasing your home. What are the going rates?
You'll quickly find that it is hard to compare. Some homes will have the same number of bedrooms and bathrooms as yours, but yours might have additional rooms that offer more square footage. Some homes have better or worse finishes than yours, such as granite verses laminate counters in the kitchen, or a master en suite bath verses a shared bathroom. The list of comparisons can be daunting.
Comparing homes can be difficult, here are some fairly tried and true rules that I have learned that allow me to size up the market and the competition.
- Number of Bedrooms
- Number of Bathrooms
- Quality of the Kitchen and Bathrooms
- Overall Square Footage
Let me preface this by stating that we rent mostly historic homes. These homes are in an area that particular streets are more desirable (less traffic) and yard size is often small (thus, more private, larger lots, matter). Additionally, historic homes traditionally offer storage challenges, so when a historic home offers storage, this is a big advantage.
That stated, people overall care about having a nice space/street to live on, some place to store their holiday decorations, and enough space for their family. They also care about the amount of bedrooms and bathrooms. The price of the home is usually most dependent on the number of bedrooms, more than bathrooms, but no one will complain about having additional bathrooms!
People care about kitchens and bathrooms and the quality of the finishes. Depending on your market, the level of quality can change. However, across the board, attractive surfaces, cared for appliances, and nice flooring go a long way.
When you put this all together, you can start to compare homes on a more equal basis. Perhaps you have a very nicely appointed two bedroom home that has 2 bathrooms, a fully remodeled and upgraded kitchen, and a private, fenced yard. This might rent for the same price as a three bedroom, one bathroom house that has a standard grade kitchen and one less bathroom, on a busier street with a smaller yard.
It is not simply the size of the home that determines the rent, but as importantly, the quality of the home. Some people will sacrifice more space for better finishes; others will want that extra bathroom. When pricing your home, consider the competition in your size range and determine if you were looking to rent, where would home fall amid the available competition on the market? Would your home be as nice as the others? Nicer? Less nice? If you were looking to rent, consider what price would make your home a "no brainer" or "I need to call quick before this house is gone?" That is the price you want to consider. Something that makes a potential client act so they don't lose out.
We'll cover more on this in the future, but hopefully this helps guide you in determining a rental price for your home. Once you know your market, you can better compare what your home has to offer a potential client, and you can more accurately determine the best price.