If you’re contemplating renting out a house you own and are wondering what rental rate to charge, there are various factors you need to consider when arriving at that figure. Deciding on a fair rent rate for yourself and your tenants can lead to a much more successful, and financially healthy, rental business. Here are the main steps you’ll need to complete to arrive at an appropriate rate.
Determine the Current Value of Your Property
You should start the process by determining what your home is currently worth in the market. There are websites that provide fair market value estimates for your home, like Zillow for example. Zillow’s estimated home value can be used as a starting point, but should not be the only data you use in determining a home’s value.
There also are several publicly available data sources allowing you to calculate the value of your home using an analysis of comparables in your area. “Comps” are homes similar to yours that have recently sold and can help you assess the value of your own house. You should narrow your search to homes that have sold within the last six months and located close to your home, as prices can fluctuate dramatically the further out you search from your local area.
Real estate agents and brokers can serve as another useful source for determining your home’s value. Your best bet would be to consult with a real estate professional who specializes in homes sold in your area.
You also have the option of having your property professionally appraised for a fee, usually in the vicinity of $300-$500. A professional appraiser provides the most reliable and defensible valuation, as he or she will be able to assess the current condition, such as upgrades you may have done recently. Online tools, by contrast, will only consider the historical value and a few other factors.
Use The 1 Percent Rule As A Benchmark
After you have an accurate assessment of the market value of your property, you will need to figure out how much rent to charge. Typically, the rents that landlords charge approximate 1.0 % of the home’s value, which can be adjusted by a few tenths of a percentage point either way when factoring in things like special amenities. For example, for a home valued at $300,000, a landlord could charge around $3,000 each month. If your property has a recently upgraded bathroom or kitchen, for example, consider charging a slightly higher rent.
Other than your home’s worth, you’ll also need to consider what landlords are charging for similar rentals in your area. If the rent you want to charge is unreasonable compared to what everyone else around you is charging, you might struggle to find a tenant who’s willing to commit to your terms. Craigslist and some other websites provide a good source for finding out rental rates your competitors are offering.
Research Local Rent Laws
Several states, including California, have rent control laws limiting how much a landlord can charge for rent, which amount changes each year to adjust for inflation and other considerations. Check the local laws to ensure your rent complies with local regulations.
Adjust The Rent Based on the Season
Spring and summer months typically create higher demand for rental properties as compared to fall and winter months. This means that what you might offer for rent for new tenants may need to adjust based on the demand in those months.
Conclusion
It’s important to charge a fair market rent for your property because it will lead to fewer vacancies, longer tenant tenures, and can also increase the number of prospective tenants who are interested in your property. Picking a rental rate using the above steps can ensure you make a decent return and easily find tenants to rent your home.