A Guide to Understanding How to Price Rental Properties
As with any other area of a capitalist market, the cost of renting property is dictated by the laws of supply and demand. Landlords, as the supplier, are incentivized to maximize profits by providing the cheapest services at the highest possible price.
Tenants, of course, want to pay as little as possible for the best place they can find. That’s why so many looking for apartments use a rent calculator to make sure they’re getting a fair price. Rent prices represent a sort of compromise between the two sides.
Your collected rent will be used to pay for both building operations and your own needs. You’ll hopefully be able to make a little extra on top of that, as the average landlord has a profit margin of about 13%. But how exactly to price your properties in order to extract the most value from them is a tricky question. Luckily, we have a few tips to help you through this process.
It’s Not All About Increasing Rent
The logic here makes sense. The more you can get your tenants to pay, the more money you’ll take home. It’s important to remember, however, that the rent you receive from an individual tenant isn’t always equal to your net profit. This is due to a variety of factors which are vital for every landlord to understand.
It’s possible that a bad tenant will be willing to pay more for an apartment, but that doesn’t necessarily imply that they’ll be the best thing for your business. Tenants who don’t pay on time or who cause disturbances in the building will end up being a significant drain on your resources. You should therefore stay alert to any red flags coming from potential tenants.
Consider Your Timing
One underutilized method landlords can use to get more in rent is listing their apartments at the most popular times of the year. Seasonality has a significant effect on rent prices, meaning that letting a place sit until the right time could end up making you more money than if you had rented it immediately.
In general, rent will be higher in the summer and lower in the winter, when children are in school and weather conditions can make it difficult to move. Supply and demand will apply here too. Since more people will be looking for an apartment in the summer months, you’ll be able to charge more for the same location.
Another important aspect of timing is how long you have before the current lease ends. If the tenants are moving out in a week, you’ll be desperate to fill the apartment and potentially forced to take less than market value. Instead, start your tenant search as soon as possible to give yourself plenty of time to compare potential tenants.
Study the Competition
The easiest way to determine a fair price for your apartment is by comparing it to others that are similar. Websites like New York’s StreetEasy make it simple to find places based on specific criteria. Go too far below the average price for comparable apartments and you’ll leave money on the table, but doing the opposite may result in an extended vacancy.
Setting rent is a difficult process for any landlord that involves significant research and time management. Hitting the right point on the supply/demand curve will ensure that you’re earning the highest possible profit on your properties, enabling you to improve them, purchase new units, and continue growing your business.