How Much Rent Should I Charge? A Quick Guide To Smart Pricing Strategies

Figuring out how much to charge for a rental home is a balancing act – but one that can reap big rewards. A home that achieves the greatest rental income while staying occupied is the sweet spot of rental ownership and the key to achieving your financial goals. 

So how do you arrive at the sweet spot of rental pricing? One that doesn’t price people out or leave money on the table. In this quick but informative guide we’ll dive into the data-driven approach vs. manual analysis for deciding what to charge for your rental home in any market. 

The 1% rule and data-driven solutions for rental pricing

When pricing a rental home, you may have heard of “the 1% rule”. The 1% rule suggests that the gross monthly rent you charge should be equal to or more than 1% of the property price or value to establish good cash flow. There’s also the similar 2% rule, which states that if you can rent a home for 2% of what you paid for it, it will cash flow. 

Simple, right? 

If something seems too good to be true, it probably is. The truth is, the property market and rental market are not intrinsically linked. Prices fluctuate based on supply and demand. The 1% or 2% rules also fail to account for expenses such as property taxes, HOA fees and maintenance, which will all vary based on your home’s location and condition. 

If you try and price your rental property on simple equations alone, you could end up with a high vacancy rate which can eat into your cash flow and throw the math off entirely. 

Forget these so-called rules. If you want a tried-and-tested, data-driven method for pricing your home for the rental market, do the math with Belong. Belong uses a clever combination of pricing algorithms, local knowledge and real-time demand to create the right price that suits your market today. We also track pricing against your goals to create a clear path to financial freedom. 

Belong inspects every home to determine how to achieve the best ROI and residents for your home. And once we arrive at that goldilocks price, we guarantee to pay your rental income like clockwork, regardless of when we get paid. 

Related: How Guaranteed Rent is Changing Property Management Forever

How to analyze your local market to price a rental home

If you don’t have a professional in place to arrive at a rental price for you, be prepared to do your homework. There is no one ‘rental market’, so you’re going to have to do a deep dive into your neighborhood and see what other people are charging for rent. This will help you establish a range of prices on the low and high end for you to compare your amenities against. 

1. Look up current rental listings to establish a price guide

Renters search for homes online, so this is a great place to start when establishing your baseline of what rent other homeowners are charging in your area. Websites such as StreetEasy, Zillow, Redfin, OpenDoor, and Trulia can help. Another resource to consult with is HUD’s Fair Market Rent Database.

2. Assess your home vs others on offer

Comparing floor plans and square footage isn’t going to be enough for accurate rental pricing. There are so many nuances which drive rental value such as:

• Age and condition of the home
• Storage space such as closest or on-site garage
• Availability of car parking
• Functionality and comfort of the home
• Walkability and proximity to public transportation, shops, schools etc 
• HOA restrictions and rules
• The strength of the local job market
• Housing affordability
• Demand for rentals at your time of listing 

Do your best to narrow down comps based on pull-factors. For example, your smaller home may be worth more than an extra bedroom because it’s in a convenient location. Or your work-from-home space could attract a premium with the shift toward remote and flexible work.

3. Consider your timing and seasonal shifts

The most important factor in real estate pricing is location. The second is timing. As a supply-and-demand based market, seasonal shifts will alter what your rental home is worth. That means a 3 bedroom home in California will not cost the same in December as it does in August. 

Related: How To Achieve The Best Rent By Listing In Summer 2024

4. Consider local laws on rent control and rent stabilization

Depending on where your rental home is located, you may not be the only one that has a say in how much rent you charge for your home. Rent control laws and rent stabilization ordinances vary from city-to-city and even those rules can vary based on the age and type of home you’re renting out. This is to prevent landlords from luring in tenants and then hiking up the rent astronomically. 

It’s worth checking with your local city for local laws in case there are caps on things like security deposits and rent increases, which may affect how to choose to price rent. 

Let Belong optimize your rental pricing

Instead of relying on guesswork, let Belong optimize your cash flow by listing at the right price to achieve your financial goals. 

Belong is a proptech company on a mission to fix long-term renting by focusing on modern innovation and services that support everyone. We’ll partner with you to get your home the best price, guarantee your rent, and care for it the way you would. Never worry about bad residents, late rent, cost blowouts, or 2am phone calls ever again. 

See why thousands of US homeowners are ditching outdated Property Management in San Francisco, Austin, San Diego, Los Angeles, Tampa, Jacksonville, Orlando and more.

Disclaimer: We don’t enjoy using the word ‘landlord’. We prefer to refer to members in our network as homeowners and residents since we’re on a mission to upend and redefine the traditional landlord-tenant relationship. This article should not be considered financial advice. Please research local laws and speak to a financial advisor regarding your personal circumstances before making any decisions on investments.