How Much Rent Should I Charge For My Home? A Plan for Property Owners

How much rent should you charge to optimize your rental income? Calculating how to charge the right rent for an investment property is tricky, but here are some tips on arriving at the sweet-spot - not too little, not too much.

One of the trickiest things for a landlord to do is determining how much rent to charge. Of course you don’t want to charge too little — after all, no one wants to miss out on potential profit — but by the same token, you don’t want to charge too much and have the house sitting empty for months on end, generating no profit at all. 

You want to find that Goldilocks solution — not too expensive, not too cheap, but just right.

But how do you arrive at that perfect number? Here are three things to take into consideration when trying to arrive at the right rental pricing:

1. Analyze your local rental market

This may sound obvious, but it is essential: look at what other people are charging for similar homes in your neighborhood. This will help establish a range of prices — a high end and low end — that will help guide you to that just right price.

In order to arrive at that range we recommend looking at listing websites like StreetEasy and Zillow — Zillow even has an automated service that provides users with a free “Zestimate” of how much rent they can expect. StreetEasy won’t have any relevant info if your home is in the suburbs, but sites like Redfin, OpenDoor, and Trulia will.

 Another resource to consult with is HUD’s Fair Market Rent Database.

Keep in mind though that simply comparing floor plans and square footage isn’t going to be enough in most situations. There are so many nuances which drive rental value:

• Age and condition
• Closet space – not always easy to assess by sheer dimensions
• The range of amenities
• Proximity to a walkable downtown, public transportation, and highways

The bottom line is, even if you think you’re making an apples to apples comparison, there might be a couple of worms you’re just not seeing.

2. Calculate 2% of your home's market value

A traditional method that many property managers use is known as "the 2% rule". This is a simple formula, calculate between 1-2% of the home's market value to arrive at the rental price. However, before you accept this as a hard-and-fast 'rule', be aware that property prices often rise faster than rent prices. They're also hard to track in real-time and you could wind up charging too little or too much if you stick too closely to 2%. Nonetheless, it can help make the ballpark estimate you’re working on that much more precise. 

3. Consider your timing

Another important consideration when pricing out a rental property is timing. The pandemic has created huge highs-and-lows within certain regions and demand plays a big role in pricing a rental. When demand is high and stock is low, you can confidently raise your pricing. If you have a very small property with no space to work from home, you may still be facing discounted rental pricing.

The season when you list your home can shift the pricing too. For example, a Miami property can attract a premium in Spring-Summer.

Read More: 4 Reasons Summer is the Best Time to List Your Rental Property

The alternative: Foolproof rental pricing from the experts at Belong

As you can see, there are a lot of variables at play. Which is why it makes sense to look to a property management alternative, like Belong. Belong's unique proprietary algorithm tells homeowners the exact right amount to charge for rent. It combines real-time data, with insights about your unique property.

Once your home is listed on Belong, we get a true measure of the market by looking at impressions, clicks, tour sign-ups and how many people have started applications. With all of that data at our fingertips — plus local-market benchmarks — we can work with homeowners to react quickly and maximize rental value, while minimizing vacancy. As a result, Belong has 66% less vacancy on our platform and get residents into home within 19 days, on average.

Want to see if your home qualifies for the unique Belong solution? Click here