Apartment Price Setting Strategy for Landlords and Property Managers
One of the challenges of property managers and landlords when you have a new property is to determine the right rent to ask. Once you set the rent, you may be stuck with it for a long time, especially in rent controlled regions.
Hopefully, you’ve done your homework before buying the rental property and know for a fact that you can charge enough to cover your mortgage, HOA fees, insurance and other costs. Remember, that you’re in this to make a profit, so you may want to price above comparables and do solid marketing, screening, and advertising to suitable tenants.
We’ve got some tips and other resources to help you set the right apartment rental price.
Set Rental Price Strategically
Price is a function of your need for paying your bills, profit, risk tolerance, marketing skills and of course the demand for your particular apartment, house or condo. Take some time to get granular about what really does affect your desired rental price. Then you’ll be more confident that you’ve got it right.
Remember, even if you don’t get it right off the bat, you can always negotiate with prospects and then sign the tenants you really want. If you’re unable to justify your rent price via your ads and in person, prospective tenants will be resistant and walk away.
As you can see below, accounting for all the rent price variables on a spreadsheet and adjusting the price as appropriate will help you find that perfect price point.
Lets face it, it’s all about getting the right tenants who stay and pay.
Comparables Not Always the Best Guide
Conservative landlords or property managers might tend to keep the asking price similar to nearby rental units, let’s say in that building or nearby buildings. You can imitate and use rent price estimate tools which guesstimate what other apartments/condos are renting at. They’re very general and it’s not really a professional way to manage your important investments.
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While asking what the local market will bear seems reasonable, it might not cover your costs adequately nor leave enough profit to make rental property investment worth it. Comparables don’t work well because your costs and need for ongoing profit are important.
Aggressive property managers might tend to ask for a high specified price without any reasoning for it. If too high though, you may fall victim to the number one reason rental units sit vacant — too high prices, and that can be hazardous to your property cash flow needs, and investment success.
However, you could start advertising with a high rent, and bring it down if there aren’t any responses. That seems more intelligent than beginning with a low rent and dealing with a deluge of inquiries from questionable quality tenants. Tenant screening software won’t help you much if all your applicants are not ideal.
Too Low or Too High, Where is that Sweet Spot for Rental Price?
Is there are magical mathematical formula that will keep you happy and ensure your suite enjoys zero vacancy rates? You could multiply your home value x .1% or .05% to arrive at a price and pay off your mortgage in 10 years to 20 years.
$550,000 x .01 = $5500 per month! $220,000 x .005 = $1200 per month. A formula might not help much.
The Usual Rental Pricing Factors
Typical standard factors the influence rental prices are view from the apartment, floor level, square footage, layout, condition of appliances, number of bedrooms/bathrooms, closet space and parking. Check other landlords ads and see if they’re offering incentives such as free cable, free parking space, or storage as it may indicate the area is very competitive.
Once you get a general ball park figure, you can begin to adjust the asking rental price to suit your circumstances.
Here’s 9 Tips to Help You Get that Ideal Price
- estimate your monthly costs and add 30 to 40% for excellent return or 0% to break even
- ask the landlord in the multifamily complex/building the range of rents
- search online via websites that offer apartment searches
- search for rentals on Zillow, Realtor.com for rental prices in that building, zip code or neighborhood
- weigh your unit’s benefit/features vs comparable rentals in the immediate area and adjust your asking price by -20% to +20% depening on how competitive your unit is
- if you’re renting from May to September, there’s higher demand so you can bump it up 10%
- spending $500 or more to advertise? Add 10% to rent because you’re getting better quality tenant propects
- stay ahead of cost of living increases, add 5% to ensure you’re winning not losing
- in demand neighborhood? Add 10% because of the desirability of your neighbourhood going forward into the next 5 years
Pricing Your Rental Well
You can see that pricing is a process of maximizing ROI vs risk and the intersection of supply vs demand driven price levels.
Use the spreadsheet approach so you know what your rental is worth against competing units. Then do some quick testing in your advertising to gauge interest and willingness.
In low vacancy markets, you can afford to be a little more aggressive. With the US rental housing market tight, and mortgage qualification difficulty rising along with high employment and rising wages, you may get a good price.
Rentometer: Rentometer provides a comparison of apartments similar to yours and their portfolio Analysis tool is perfect for analyzing a large list of properties/addresses.
Zilpy Rent: Zilpy Rent helps you find the right rental rate by using advanced data mining algorithms that assess property SQFT, crime rate, school ratings and demographics, using similar neighborhood comparable properties.
Eliot for Airbnb: Eliot’s rent estimate uses billions of vacation rental pricing points to predict short-term rental revenue, trends and price surge events.
Here’s to seeing you get your price and acquire a high quality tenant whom you can keep happy. Pricing is just one variable in property management. Take care of all the other areas, and you’ll get your price.
As part of a professional, time efficient approach to rental property management, check out ManageCasa. You can test drive it right now.
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