by Ben Luxon April 26, 2019 3 min read

Amongst the very first things you need to do when you invest in a rental property as an independent landlord is to work out how much you should be charging for rent.

This isn’t as simple as you might think. You can’t just pluck numbers from a hat and go with what feels right.

Charging a competitive price that isn’t too cheap is a fine balancing act.

For short term though, vacation rentals there are a different set of rules. Scroll to the bottom to find out more.

Related Article: How to Calculate Prorated Rent

5 Steps to Setting your Rental Price

1. Estimate off your Homes Value

If you don’t already know the value of your property, this is the first step.

Then as we went through in the section above, use the value of your house to create an estimate for your monthly rent.

A good first step is working out how much your house is worth. A couple of ways to do this are:

  1. Check out the value of similar real estate in the surrounding area. (You could even go on a couple of viewings).
  2. Get a home appraiser to come round
  3. Look online at similar houses - use websites like Craiglist.

As a broad rule of thumb, the amount of rent you charge should be a percentage of the value of the house. Somewhere between 0.5% - 1.0% of the homes value.

For example, the property is worth $400,000. 0.8% would be $3,200 a month.

This though doesn’t take into account a number of other factors though. For example, here is a short list of amenities that will increase a properties value.

  • Swimming pool
  • Fitness center
  • Schools
  • Elevator
  • Garage
  • A good security system
  • Doorman

2. Look at average rents in your area

Look at rents of comparable properties: Use three properties that are similar in square feet, condition and located in the same neighborhood

Things to take into consideration when comparing rental properties:

  1. Their proximity to each other. You want them to be reasonably close. The more rural the property the greater the distance you can allow for.
  2. Indoor Size: Their square footage should be at least within a couple hundred feet.
  3. Garden: Buildings with an outdoor space are generally more desirable and can add value to the property.
  4. Number of bedrooms: These should be the same. Don’t compare your property with a 2 bedroom one down the road if yours is a 3 bedroom unit.
  5. Number of bathrooms: Again these should ideally be the same.
  6. Condition: Has your property recently undergone renovations? In which case the comparison properties should also be recently renovated.
  7. Amenities: An extreme example would be a swimming pool. Obviously this would add value.

3. Ask Local Real Estate Agents

Your local real estate agents will likely have a good idea as to the market in your area and be able to give you a good idea as to what you should be charging.

This is perhaps the easiest solution, however, we always suggest you do your own research on top of consulting with a real; estate agent to make sure you understand as fully as possible the market you are buying into.

setting your rental price

4. Evaluate the Neighbourhood

Think about transportation, school ratings, and crime statistics.

Secondly work out the average price by square foot of a selection of nearby properties and use that as a way to estimate your rentals worth.

5. Short term / Vacation rentals

Renting out your property as a short-term rental has it’s benefits and drawbacks. Whatever you decide though, the rental pricing process is different.

You will want to find a number of similar rentals near to yours - with similar features and amenities and compare their nightly price.

Take the three most similar add them together and divide by three to get the mean rental price for that area. This will give you a good starting point.

Popular vacation rental sites like Airbnb and VRBO are perfect places to start for this purpose.

Final Words

Figuring all this out requires a fair bit of research. On top of this you should keep you finger on the pulse, as it were, so that you can adjust your rental prices down the line, maximising profits but maintaining a competitive edge.

If you’ve chosen to rent out your house instead of selling it, you can’t charge rent solely based on the size of your mortgage payments. Picking a rental rate based on area rents, amenities and property value will ensure you make a decent return and easily find tenants.

Ben Luxon

"Ben is a co-founder, author and real estate enthusiast. His interest in all things entrepreneurial has led him to work with real estate professionals all over the world, distilling their knowledge into articles and Ebooks. His love of travelling has taken him to over 10 countries in the last year, where he has sampled the craft beer of them all."

Leave a comment

Also in Articles

What you need to know about Investing in Commercial Real Estate
What you need to know about Investing in Commercial Real Estate

by Ben Luxon August 17, 2019 6 min read

There are big gains to be made with commercial real estate. However, getting into commercial real estate can be a bit harder that residential, especially if your new to the game and don’t  already have the right contacts. 
Read More
Truly Free Tenant Screening (For Everyone)
Truly Free Tenant Screening (For Everyone)

by Ben Luxon August 13, 2019 3 min read

Tenant screening is vitally important to ensure you get great tenants. Capitalising on this most tenant screening services charge. There are a couple of problems with this. Which is why we've partnered with a new service to provide truly - actually free tenant screening for everyone!
Read More
Hard Money Loans the Risk vs. The Rewards
Hard Money Loans the Risk vs. The Rewards

by Ben Luxon August 10, 2019 5 min read

When it comes to investing in your perfect investment property there are occasions when the banks aren’t as eager to give you money as you might want them to be. Enter the hard money loan. Learn what a hard money loan is and the benefits and risks for a property investor.

Read More