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Just like most businesses out there, setting the price right for what you can offer is essential to the success of your venture. Your rental rates may be the deciding factor on whether you get tenants or not, so determining rental prices or how much rent you can charge should be a priority.
Key Highlights
- Setting the right rent is crucial to attracting tenants and ensuring your rental business stays profitable.
- Researching similar properties, rental demand, and your property's size, type, and location helps determine a competitive rent.
- Your rent should cover operating expenses like taxes, mortgage, and maintenance, while aligning with your target tenant market.
- Charging too little can lead to financial loss, while charging too much may result in vacancies and tenant turnover.
Factors to Look Into
Necessary Laws
It's important to research rent control laws in your area before setting the monthly rent price. If you're a Texas landlord, you luckily don't have to worry about those since there are no statewide rent control laws. However, that still doesn't mean that you should charge however much you want for rent.
Similar Properties
Researching comparable properties in the area and learn how much they charge for rent. This can give you an idea about how much your rent price should be. Keep in mind that comparable rentals don't always charge the appropriate rent price, so this should just be one of the several factors you should look into.
Rental Demand
The rental market demand is a huge consideration in determining the right rent price. If you find that there is a huge demand for rentals, and other rental properties are already at full capacity, you might be able to charge higher rent prices.
Property Size and Type
You should calculate rent price based on the number of bedrooms, bathrooms, square footage, and the type of property you have. Single-family homes tend to have higher rental rates because of the privacy they offer, whereas rental units in a multi-family property should have a relatively lower rental rate. Based on the market trends in the area, your property type may or may not be in demand.
Amenities
It's not just about the amenities you have, such as in-unit laundry or other appliances. It's whether your rental property is at a desirable location— is the property's location close to grocery stores and public transportation? For apartment units, for instance, students might be more inclined to rent your property if it's near their school or university.
Operating Expenses
You know you have the right rental price when your rental income can cover your monthly expenses. This is arguably the most important factor since it will keep your rental business afloat. Property owners collect rent mostly so they can pay for utilities, property taxes, mortgage payments, property maintenance costs, and other rental property-related expenses.
Target Market
How much rent you charge may depend on your target market. If you aim to rent to young professionals who can make higher rent payments based on their average income, you might be able to increase your rent amount. If you plan to rent to students, it might be difficult to find potential tenants if your rent price is out of their budget.
Property Condition
The property's desirability is closely tied to its condition. If your building is new, you can charge higher rates and still find quality tenants. However, if your rental property looks older than similar rentals and still has the same rent price, it will be harder to attract tenants.
Vacancy Rates
Check nearby listings to see occupancy rates in the local market. If so, you must be competitive in setting rent prices if you want to attract prospective tenants. With low rental demand, how much you charge for rent can make the difference between getting renters or not.
What Happens If I Charge Below-Market Rent?
If you set your price too low, your rental property will suffer due to negative cash flow. You won't be able to make upgrades, or you could be behind on payments. Worst-case scenario, your investment property can be subject to foreclosure if you cannot make mortgage payments.
In these circumstances, you might want to hire a real estate agent or property manager so they can run a rental market analysis. They will have the expertise to balance the right rent amount and the needed monthly income to keep your rental profitable.
What Happens If I Charge Above-Market Rent?
You might not be able to find tenants for your property since they will opt for similar rentals with lower rent prices. Keep in mind that vacancies will reduce your property value, and that will have a domino effect that will impact your cash flow.
The same goes for rent increases. If you increase rent for your current tenants, rent collection could become more tedious since they can no longer afford your rate. This could increase tenant turnover and reduce your profitability significantly.
Rent Price FAQs
How much should I charge based on property type?
- Research similar rentals in your area and compare rates. If you're unsure how you should price your rental, it's best to consult real estate professionals.
Can I increase rent once I find tenants?
- That depends on local regulations and whether you stipulated it in your lease agreement. In Texas, you need to provide a 30-day notice in writing for month-to-month lease terms. However, it's not ethical to raise rent after just the first month, and the tenant may choose to end their tenancy instead.
When can I increase my rent amount?
- You can do so when your income can no longer keep up with your expenses. You may also do so when you make upgrades on your rental property.
Let Us Make Your Investment Journey Smoother
Running a rental property takes a lot of work, expertise, and connections. It's something you can build up over time, but you won't have to with the help of Austin Property Management. We can provide you with everything you need to manage your rental efficiently, making it as profitable as possible.
Contact us today and learn more about how we can help you!
