Setting a Rent Estimate for Your Property
If you’re a landlord, estimating the monthly rent for your property is an important part of calculating, and ultimately determining, the value of your financial investment. Your rent estimation will not only directly impact the profit you make each month, but will also affect the rental property‘s ability to attract tenants. Coming up with an accurate rent estimate is no easy task, but it’s essential that it’s done right.
It may be tempting to simply set the highest possible rent to maximize your profits, but this is a mistake. Having a high rent compared to your property value will make it difficult to attract and retain tenants. As we all know, an empty property is nothing but an expense, so being able to consistently rent your property and boost lease renewal can make the property more profitable in the long run.
On the other hand, a low rent estimation can obviously be harmful by minimizing your profits. A rental property with a very low net profit can end up being an expense with unforeseen circumstances like natural disasters or other emergency repairs. A good investment is one with a high ROI, so an accurate rent estimate will find a balance between these two extremes and reflect the current market.
What factors determine a rent estimate?
When setting a rent estimate, these are the most important factors that can indicate the state of the local market and your property’s value:
Prices of Comparable Properties
The simplest way to get a ballpark estimate is to look at nearby properties that are similar to yours. This means properties with the same number of bedrooms and bathrooms in the same city, so you’re comparing within the same local market. When comparing other properties, consider the following:
- Does this property have more or less square footage?
- How does the neighborhood compare?
- What are the amenities or additional features?
- Does this property’s rent include utilities?
Finding a property of slightly higher value and one of slightly lower value can be a great way to figure a rent estimate for your property. However, not every other property will be properly valued, of course. Just because another property is listed for a certain rent doesn’t mean this determines what your rent should be; it’s a good idea to have multiple properties to compare to.
The Surrounding Neighborhood
The area that surrounds your property can have a serious impact on the property’s value. Factors like construction sites, school district quality, public transportation, entertainment and shopping centers, and safety rating can increase or decrease your rent estimate.
Amenities and Features
When comparing rent prices of similar properties, it’s important to adjust your rent estimate based on the unique features and amenities of the unit. Some common amenities that can increase a rent estimate include:
- Large backyard or pool
- New appliances
- Washer/dryer
- Free parking
- Complex-wide amenities (gym, food court, etc.)
- Security systems
Rental Market Conditions
Pay attention to national and local rental market trends, as these can influence your rent estimate regardless of the value of your property. An influx of renters will create a higher demand for your property and can allow you to increase your estimate. Likewise, if there are a high number of vacant properties in the area, your estimate may suffer. Conditions that can influence market trends include:
- Interest rates
- Demographics
- Government policies
- State of the economy
Use a Rent Calculator
In order to be a smart investor and a strong landlord, it’s a good idea to learn how to make your own rental calculations. However, there’s no harm in consulting a rent calculator. There are many online tools that allow you to enter some of the factors discussed above and calculate a rent estimate for you. Alternatively, if you have a strong property management company like Utopia, we can use our immense experience in the rental market to help you create an accurate rent estimate for your property.Â
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