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Rental Trends: How to Calculate How Much Rent to Charge

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and home owner associations. Please submit any questions in the comments section or via email.

Whether you are managing your rental property on your own, or have hired a property manager, here are three things we at Gordon James Realty take into consideration when calculating the rental rate for a given property.

Market Research

First, we get a feel for comparable properties in your area. Study listings and units for rent locally and ask the following questions to get an idea of how your property compares:

  • Is the rental located in an area that’s particularly attractive to tenants?
  • Is it larger (or smaller) than typical properties with similar specifications?
  • Is the property likely to attract certain groups, such as students, families or young professionals?

Based on the answers to the above questions, we hone in on comparable properties and adjust the rent up or down to account for positive and negative differences. Pay attention to length of time comparable properties remain on the market. Those that are rented out immediately may be well-priced (or underpriced).

Operating Expenses

While the rent should be competitive in the local market, you also need to be able to cover your costs. Look at your budget and estimate your operating expenses. Consider what you’ll spend on mortgage payments, if any, insurance, taxes and an adequate amount to spend annually to maintain and improve the property and make sure your investment will produce adequate income.

Keep in mind, you might not be able to cash flow positive and this is something that should be determined when you perform due diligence on your investment property, before you purchase. Consult your accountant for possible tax breaks in any losses you take on the property.

Flexibility with Quality Tenants

In some situations, it might make sense to discount the rent in order to attract a great tenant. For example, if an applicant has a stellar credit score or is willing to sign a longer lease, you could offer a small discount on rent. Say you knock $100 off the $2,500 rent to seal the deal. In one year you’d make $1,200 less, just half of what you would lose if the apartment sits vacant for just one month. If the tenant signs a longer lease, you’ll save the costs of vacancy between tenants as well as costs to turn over the rental.

For additional resources on how much rent to charge and other property management questions, please visit our resource center.

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