Aim for a balance between generating sufficient income and keeping your rentals occupied by setting the right rental price. While most landlords know this is essential to stay in business and avoid bankruptcy, it is often easier said than done. After all, it’s not like a magic ball can tell you the perfect figure to charge. Setting the right rates requires detailed property comparison, and consideration of your rental expenses; all while adhering to rental law controls. Read along with this article on how to effectively strategize rental pricing without compromising too much on your tenants.
Importance of Comparison on Rental Rates
Maximize Your Rental Income
Get the most out of your investments by paying attention to current market trends. As a property owner, it’s essential to have a good grasp of your operating costs to stay in business. By simply adding a tidy profit to these expenses, you could wind up leaving a lot of money on the table when similar properties in your area are charging way more. Yes, having lower prices can pay off in the long run through fewer vacancies, but it could easily backfire when rental control laws stop you from increasing your rent when inflation starts kicking in. As a result, comparing and matching your rates to similar properties can help you maximize your income.
Beat the Competition
Attract more tenants to your property by setting reasonable rental rates. It is essential not to undervalue your rental’s worth and make sure to research well the rental rates in your area to maximize the potential ROI of your rental. The trick is to find the balance between making potential renters feel like they’re getting a good bargain, while also reaping a fair profit on your investments. It is suggested to seek help from a professional rental manager in Richmond to guide you on the right rental pricing.
Identify Your Property’s Drawbacks
Financial experts recommend finding three or more properties to conduct a sufficient rental comparison because it can be difficult to pinpoint a house that matches your exact specifications. For instance, if you own a three-bed, two-bath single-family unit, the house across the street could reasonably charge more money if it include a third bath. Likewise, other properties may have minor changes that account for differences in rent such as energy-efficient appliances, increased curb appeal, or a better walking score. Some property owners use analysis results to identify potential room for improvement in their services. Comparing your property to others can help you identify what upgrades allow landlords to charge more rent and copy from their playbook.
Common Rental Property Expenses to Consider
Repairs and Maintenance
Keep your operational expenses in mind when setting rental prices to avoid reducing your net profit. Repair and maintenance costs are inevitable expenses you have to consider when running a rental property because issues are bound to appear at some point. For example, if you don’t service heavy-duty appliances like your water heater or HVAC system they could develop costly faults that are necessary to fix. Pipes could spontaneously spring a leak, or the batteries in your fire alarm could die, even with preventative maintenance. Luckily, these expenses are deductible so even if you can’t escape them, you can get some tax breaks.
Property Taxes
Owning a rental property has expenses that may surprise new landlords, like paying property taxes. This a fee your local government levies on real estate owners as their contribution to community projects. It’s essential to consider this cost when comparing similar properties and deciding your rental rate. You should also note that it varies from one area to the next, so it can also inform where you buy property.
Mortgage and Insurance
Remember loan repayments and insurance premiums when calculating your total expenses. It’s uncommon for property owners to buy a house out of pocket, so most investors have to fall back on a conventional loan or alternative financing option to fund their real estate business. As an investor, you most likely have ongoing mortgage payments to meet to avoid defaulting on your loan. Insurance is often a requirement for some loans, to protect your property from tenant damage, unpaid rent, or unforeseen accidents.
Other Fees
Account for other expenses you might incur while running your rental property. After all, owning a home comes with several bills including HOA dues, utilities fees, and vacancy costs that you need to pay. It would also be wise to add one-time payments like business registration and appraisal fees to your total costs so you have an accurate picture of your expenses.
Rent Control Laws Landlords Should Know
Consider Caps on Rental Increases for Existing Tenants
If you have plans to increase your rental rates shortly, find out your city’s policy on rental increments. Make sure it’s important to adhere to rental control laws when reevaluating your rental fees. Many states pass rent control laws to protect tenants from coughing out exorbitant fees to keep a roof over their heads, and it’s the landlord’s responsibility to know these policies and stay in line. Before asking for more money, it would be wise to know under what circumstances and by what percentage would be legal.
Set Fair Prices for New Tenants
Don’t be too quick to increase your rent when your old tenants move out of the unit. Some property owners make the mistake of thinking they can charge a new renter whatever they like without restrictions. However, beyond preventing malicious landlords from pushing tenants out of their homes with unfair prices, rental control laws also protect house searchers from exploitation. As a result, it would be wise for you to check with your local rental control board to determine your new base price.
Provide Sufficient Notice for Rental Increments
Aside from capping how much you can charge your tenants, rental control laws also dictate how quickly you can implement your new prices. For instance, it would be unreasonable for your landlord to tell you your rent is jumping from $1200 to $1400 with only two weeks’ notice. Most states require you to give renters an average of 30 – 60 days before implementation.
Conclusion
Improve your property’s profitability by setting competitive prices that keep your tenants happy while sticking to rental control laws in your area. It’s essential to find the middle ground between maximizing your profits and avoiding vacancies, so ensure you conduct a thorough property comparison to get a better idea of how much your rental is worth and what upgrades you can include to increase its value. Additionally, your rental prices should conveniently cover your expenses which include fees for repairs, maintenance, taxes, and loan repayments. With all these in view, it’s essential to also be familiar with local rent control laws that dictate how much and when you can increase your rent. Savvy property owners often hire experienced property managers to help them navigate rental pricing, maximizing your income and saving you a ton of stress.
