A question we get asked a lot is “how much should I charge for rent?” It’s a great question and obviously one of the most important aspects of rental property. If you charge too much then you run the risk of having higher vacancy. Charge too little and you leave a lot of money on the table and you are not maximizing your investment.
Rental rates are influenced by supply versus demand of housing. In Portland right now we are seeing rising rental rates due to limited supply and significant demand. This makes for one interesting rental market with seemingly ridiculous rates. There can be lines out the door for open houses for a rental with numerous qualified applicants to choose from.
General sentiment in the city is that rents are getting a little too crazy. People are wary that Portland is becoming unaffordable, and rightly so. A funny thing happens when you are determining how much to rent your property for and it’s very akin to counting your chickens before the eggs hatch. People know that the market is going a little nutty right now and they start thinking how nice their cash flow is if they get $2,000 per month for their 1 bedroom, 1 bath apartment. Who wouldn’t, right?
Here are some great tips on how to determine rental rates and things to consider:
1. Know your market
Call all the “For Rent” signs and ask how much they are renting it for, how big it is, what the amenities are, what is included in rent, and if you have the time, go check out what the places look like. You’ll get a great feel for what things are going for.
Search the Craigslist and other listing sites for current listings in your area. It’s often very helpful to get a Dollar Per Sq. Ft. amount for each place and determine the rental range in your area.
Ask your neighbors and other investors what they are renting their places for. Usually neighbors are a wealth of information and it only takes one to give you a great run down on what’s going on.
It’s amazing how responsive the rental market is. If you are not getting the amount of interest you are looking for to find qualified renters, then you may want to think about dropping your prices. It’s amazing how even lowering the rate by $100 can make a huge difference in the amount of inquires you receive.
I can’t verify this but I’ve actually heard that for the high end market the opposite holds true. Up the rental rate so that it appeals to a “luxury” market and you may find a new segment of potential renters. I’d love to hear from someone that can verify if this is true.
3. Understand the demographic
This is a significant factor to consider. There are a lot of different types of rentals out there and that can significantly affect the rental rate range. It’s also important to understand what your demographic is looking for. Is it a room to rent? An entire house? A condo with no yard? All of these things can influence the price you charge.
4. Find the Sweet Spot
Rental rates operate on a scale and there is definitely a sweet spot. Just because rental rates are increasing does not mean you necessarily want to pioneer those high rates. The amount of time it takes to rent up your space increases at the higher end of the spectrum, tenants become quite demanding, and turnover increases in the long run.
The trick is finding the sweet spot that gives you as a property owner a great return while also limiting vacancy and turnover. This is a great strategy and one that I hope everyone fully embraces.
5. Ask a professional
Don’t be afraid to call up a property manager or an agent and get their take on what rents are going for in the area. This is what we are here for and even if my services are not required I am happy to talk with someone about the market.