Congratulations! You’ve reached a huge milestone by buying your first rental property. The next step is to set a reasonable monthly rent for your property. This can be daunting especially for first-time property investors because any mistake could affect your return on investment (ROI). So, here are five factors to consider when setting monthly rents for your investment properties.
The location of your investment property greatly affects the property’s monthly rent. So, to correctly set the rent, check the location. Where is the property located? What view is from the property? Are there any social amenities around? What are other people charging in the area?
For example, if your property is located a few meters away from a school, park, or supermarket, it will positively affect the property’s monthly rent. Conversely, if the property is located in an area with security issues or far from social amenities, it would negatively affect the property’s monthly rent because prospective tenants would be reluctant to rent in that area.
Additional expenses like the utility costs, taxes, HOA association fees, maintenance costs, etc. should be considered before setting your monthly rent. For example, property taxes vary across different states and cities. You need to know how much you would be losing to these expenses before paying for it.
A property with more amenities will attract more tenants than a property with fewer ones. Check if your property has the same amenities (like bathroom, cabinet design, lighting, landscape, etc.) with similar properties before comparing costs.
On the other hand, no one is interested in living in a locality where you are required to take a 40 minute walk every day before reaching the bus stop or you need to drive 20 minutes to reach the nearest school. The closer the amenities, the higher the demand and the more you can increase the monthly rental costs of your property.
The simple rule in real estate investing is that the higher the demand for rental properties the higher the rental cost. So before setting the rental cost, check the demand for your type of property around your location. This can be done by doing a basic analysis of the listing and vacancy rate. The higher the listing and vacancy rates the lesser the market demands for properties in the area. And the lesser the demand the lower the rental amount should be to attract tenants.
The basic and most easy way of setting a monthly rental cost for your investment property is by comparing similar properties. An investor can easily set the monthly rental costs by checking out properties located on the same street with your property.
As easy as comparables are, when done wrong, it can also negatively affect your property’s ROI. So when comparing your property with other properties, check if the property:
- Is located in the same area
- Has the same number of rooms and similar layout
- Is the same or similar size
- Contains similar amenities and appliances
If you find that both properties are like each other you can then compare the rent, otherwise find another with more similar characteristics.
The five factors mentioned above are just some of the many you can use to set your monthly rent. However, only considering these factors does not provide you with a way to set a perfect monthly rent for your investment property. So, if you encounter any problem or you need clarification about any of the factors, contact market professionals, most of them are friendly and happy to help!