Many property investors rely on rent to take care of several expenses, and while setting its rate may seem like an easy enough task to do without the help of a professional, being cautious is advised to maintain a good standing in the market and ultimately move one’s investment journey further forward.
One of the best ways to determine the right rental price for your property investment is by comparing it to the current market, as opposed to getting a real estate agent or seeking help online.
According to Eezirent’s Diane Bukowski, “You can get a real estate agent to do this but be prepared for the hard sell of the agent trying to get the management listing, [or] you can get an appraisal online but be aware that you are providing free property and personal data that can be on [sale] to marketing companies.”
Property investors must also do well to remember that the price of rent is subject to the level of supply and demand in a particular area.
Some of the mistakes to avoid when setting rent are, as follows:
1. Automatic rent increase
Always remember the most important words for setting a rental price: “Current market.”
Avoid the habit of taking the existing rent and increasing it by a certain percentage without assessing the current market, even if the property has been vacant for a long time or a long-term tenant has decided to move out. Keep yourself in touch with the current market at all times, Diane said.
2. Pride before a fall
Do not hesitate to decrease the rental price to get a tenant—after all, the price should be driven by market forces. The lack of applicants could mean that the price you have set is way above their expectations.
Diane explained: “Every week a landlord holds out for their desired price is a direct and expensive hit to the return on investment.”
3. Comparing apples with oranges
The rental price you set must be comparable to properties in the same location with similar features, including the number of bedrooms, bathrooms, and car spaces, as well as the age of the property and surrounding facilities.
4. Using rent to recover expenses
Contrary to the belief of many budding investors, setting rent is not a mathematical equation but an economic one.
“The monthly cost of the property investment to the landlord cannot be the basis of determining the rent. There is no point setting the rent at $450 a week because that’s the amount needed to pay the interest payment on the loan,” according to Diane. “The tenants do not take that into account when making their economic decision to apply for the property. In fact, they don't care.”
At the end of the day, property investors must think like tenants instead of landlords. The keys to an accurate rent are to deal with the current market, use free online tools available, and start with a broad search of comparable properties before narrowing it down to specifics.
Diane’s final advice to property investors: “Listen to the market when the property is advertised and respond to what it is saying.”