It is common to want to rent out your home, but it comes with concerns, especially how much to charge for rent. Setting a competitive rental price is key to your success as a landlord.
You may have done your homework and educated yourself on the ins and outs of what a landlord is responsible for, but if not, we’ve got you covered with some things to consider.
Things to Consider Before Renting Out Your Home
Are you prepared to:
- fix up your property before renting it out?
- cover expenses, such as property taxes, maintenance cost, and homeowner’s insurance?
- advertise your home?
- screen and select potential tenants?
These are only a few of the responsibilities that come with being a landlord. Check out How to Rent Out My House for additional tips.
How Much Should I Charge for Rent?
Renting out your home can be lucrative, you may make enough money to accelerate the payoff of your mortgage, or to pocket the profit. Better yet, you may be able to grow your savings.
Determining how much you should rent your house for is a step by step process, which starts with bringing in enough rent to cover your mortgage and expenses.
Cover Your Mortgage and Expenses
If you don’t want to pay for your home loan yourself, the rent that you charge must be at least equal to your monthly mortgage payment. Don’t forget to add expenses such as maintenance costs, insurance, taxes, homeowner association fees, and utilities that you might cover for the tenant.
Breaking even with your mortgage is a scary option because emergencies happen, and they typically take a bite out of the bank account. Cover your assets!
The Worth of Your Home
Knowing how much your home is worth is key to calculating how much rent to charge.
You can use online services, such as Zillow, to estimate your home’s market value. You can also hire a professional home appraiser who will precisely determine the worth of your home and include important factors such as the condition of your property, comparison to local home sale prices, and the location of your home.
Typically, landlords base the rent that they charge between .8% and 1.1% of the home’s market value. So, if the market value of your home is $150,000, you might charge $1200 to $1650 each month. Don’t go crazy with these figures, however. The “How much do I rent my house for?” equation must include other factors, such as affordability and average rent in your community.
It is imperative to make rent affordable for potential tenants. If your home is worth less than comparable properties in the neighborhood, for example, $100,000, consider charging 1% of the home’s market value, which equates to $1000 each month. If your home is worth more than other properties in the local area, for example, $175,000, and most homes in your area rent out for $1500 or less a month, you may need to charge .8%, $1400, to make the rent affordable and attractive to people looking for homes to rent in your neighborhood.
Average Rent in the Community
Compare your property to other homes that are renting in your community. This comparison should include size, condition, and amenities such as appliances that you might provide.
Consider amenities that could increase the rental value of your home. Is your home within walking distance of shopping or entertainment? Is it close to public transportation? Is your home located in a preferred school district?
Include incentives in your offerings to increase the rental value of your home. Leveraging higher rent for your area can be tricky and may result in driving off potential tenants, and it may also leave your property sitting vacant. But you can potentially ward off some of this by offering incentives that place your property above others in the community, such as utilities included in rent, online lease payments, or an early payment discount.
Paid utilities are a powerful incentive in the rental market. You are familiar with the average electric bill for your home, but let’s say it is $130. Consider tacking $150 onto what you charge for rent and call it “electric included.” You’ll not only cover the average electric bill, but you will also profit an extra $20 per month. Bonus: when you advertise your rental property, you will pique the interest of potential tenants by offering a service that other landlords do not. How great of an incentive is it to a tenant to not dread the electric bill, especially in a warm climate like Texas?
Seasonal Timing and Demand
People typically relocate during the summer months, especially families that have school-aged children in the household. You can charge more for rent during the summer months when rental property demand is up.
On the flip side of seasonal demand, landlords typically experience more difficulty renting out a home in the winter months, compared to June or July. One of the ways to draw in potential tenants during the off-season is to offer lower rent.
To avoid vacancy during the non-peak season, offer extended rental contracts—for 15 or 16 months, for example, rather than the typical 12-month lease. If your tenant chooses to renew their contract at the end of the 15 or 16-month term, do so for an additional 12 months to ensure the contract ends during the peak season.
Also, increase the rent upon renewal of each contract but only in manageable increments to avoid driving tenants away.
Rent Control Laws
Does your state or city enforce rent control over pricing and rent increases?
As of 2019, four states and localities, California, New York, New Jersey, Maryland, and the District of Columbia, have some form of residential rent control in effect.
The state of Texas has no rent control regulations in place except for Section 214.902 of the Texas Property Code, which states that the governing body of a Texan municipality may establish rent control if a housing emergency exists due to a disaster defined by section 418.004, Government Code, and if the governor approves the ordinance. In these situations, which may include weather-related disasters and public calamities, rent control is lifted once the governor discontinues the state of disaster.
Get Professional Assistance
Perhaps you’ve decided, after all, that you don’t want to manage all the aspects of becoming a landlord. You might feel overwhelmed and unqualified, especially in determining how much to charge for rent. Professional help is at your fingertips.
Ambassador Property Management helps you determine the monthly rental value of your property with your best interests in mind, plus you’ll no longer be saddled with the day to day worries over the management of rental property. Call today for a free rent analysis!