How to price a rental property is one of the most important decisions you can make as a landlord. Price it too high and you’ll find your property sitting empty for a while. Price it too low and you’re leaving money on the table every month that ads up. Sort of like Goldilocks and the three bears, you don’t want your price to be too high or too low, but rather just right.
Here are some things to consider when determining how to price a rental property:
- Look at comparative rental units in your local area.
A quick look in the newspaper or online at Craigslist, Yahoo, Google, etc. can help you get an idea of how homes are being priced in your area. If your neighborhood doesn’t have too many comparative rental units on the market, you may have to expand your geographic search area. Just be sure that you are comparing apples to apples as much as possible.
If you’re property is a home on a busy street, you likely cannot price it the same as a similar property on a quiet, secluded street. If we’re talking about a commercial property on a busy road, you can likely charge more than for a similar property on the secluded street. You have to look at each property uniquely and make adjustments based on that property relative to what’s in your local and regional area.
- Look at availability of comparative properties
Looking at past rental prices can help provide a range of pricing options, but in the end part of what will drive your price is the availability of comparative properties. Much like the fluctuation in home sales based on available inventory, the price you can charge will increase when their is a shortage of properties to rent, and decrease when the market is saturated.
Be sure to check the prices on similar properties that are actually available for rent. This is your competition, not the property that was leased six months ago. Also be sure to keep tabs on properties up for lease to see how long its taking units to be leased. If the average market to lease time frame is 3 months, then you can adjust your pricing to lease sooner if needed. Conversely if you are ok taking longer to lease your property you can set a higher than average price.
- Trial and Error
Once you have an idea of the price range you should be able to get, one option is to publish a listing price and see what happens. If you get a lot of fast responses it might mean that you have underpriced your property. If you can still hear birds chirping, but no phone ringing, you probably went a little too far to the high side of what you can get.
- By Formula
Investors have long used a formula to determine how much to charge for rent. Typically the rent price is based on 1.1% to .8% of the property value. If the property has a value of $100,000 than the rent would be $100,000 X .011 - $1,100 per month. A $1,000,000 home would rent closer to .8%, so $1,000,000 x .8% = $8,000 per month. This formula approach is used for residential properties and not necessarily relevant for commercial properties.
- Let Your Property Manager Set Your Pricing
If you’re going it alone on renting out your property, then by all means utilize the four options above to set your pricing. But if you plan on working with a property manager, than it will be a lot easier for you to rely on their expertise to set the pricing. They are more in tune with the market, can quickly research past and current listings, have a better handle on current demand, and will be able to make adjustments based on the differences in comparative properties. Let them do their job and determine how to price your rental property.We offer a free Atlanta rental market analysis to gauge your pricing options
Pricing your rental property will impact how quickly your unit gets leased, how profitable you are, and how likely you are to remain under contract. While there are ways to handle the pricing decision yourself, in the end you’re probably better off letting an experienced property manger set your price.
Interested in hiring an Atlanta Property Manager? GSPM assists property owners and investors in maximizing revenue potential while minimizing the hassles in marketing and managing their properties. We recognize that there are a lot of factors that go into making a property a successful investment and put our experience and knowledge to work for you. Call us at 404-254-4502 or complete our Fast Form to learn more about our services.