How Much Will My Property Rent For? 4 Steps to Calculate Monthly Rent

Setting the correct monthly rent is one of the critical steps toward filling your property with quality renters. It's a balancing act (with some accounting and financial forecasting) to find the sweet spot. 

For example, a rental rate that's too high deters quality residents. However, a rental rate that's too low will negatively impact your financial situation and may indicate that there are underlying issues with the property. 

Just like Goldilocks' porridge, it's got to be just right. 

Because of this, we're diving into four crucial steps to help you determine the perfect rate for your investment property.

4 Steps to Setting the Right Rate for Your Investment Property 

As a property owner, you're free to set the rental rate at whatever number you wish. However, an appropriate rate can help you in several ways, including:

• Attracting quality tenants
• Covering ongoing maintenance costs 
• Maintaining cash flow
• Generating profit
• Covering associated costs and taxes

While property owners have flexibility when setting the rent amount, it's crucial to note that there may be ongoing rental control in your area, limiting the monthly rent rate.

Let's look at how to calculate the rental rate and the methods you can apply to find the "magic" number for each property.

1. Analyze "Comps" for Nearby Properties to Yours 

"Comps," short for "comparables," refers to similar properties to yours. When researching comps, be sure to have an underlying understanding of value and what property owners are looking for in today's market. Comps are one of a property manager's main methods when helping owners determine rental rates. 

When analyzing comps consider the following points: 

• Size of the property (square footage)
• Age of the property
• Key features (i.e., a swimming pool)
• Number of bedrooms
• Number of bathrooms
• Recency of renovations
• Appliances

Don't forget to factor in location-based factors such as proximity to amenities or school zones, which will also affect property value. 

When researching comps, the most accessible starting place is online listings, social media pages, and local print publications. Selling prices can also help indicate the overall market.

2. Set ROI Targets and Measure Them Against Your Desired Rent 

Remember that you purchased the property as an investment opportunity. Due to this, you must also consider the rental rate against your financial situation and goals. To start, consider your return on investment (ROI) targets. 

Factor in all costs, including: 

• Mortgage repayments
• Taxes
• HOA costs
• Maintenance costs (including a maintenance emergency fund) 
• Personal finance costs

Once you've considered these numbers, you can set your rental rate at an appropriate number to cover these costs and your ROI target. However, charging an exorbitant rate to earn additional profit while covering these costs may not be the best strategy. 

Remember that property investors earn from rental income and property appreciation. Therefore, also factor in the increased value of the property over time. 

3. Analyze the Overall Rental Market 

In step one, we took a local view to help set a reasonable rent; however, it's also significant to consider the overall rental market.

Understanding the underlying trends in the market can also help you determine an appropriate rate to set. 

Consider the following points: 

• Supply and demand: To help determine this, measure the number of listings. A high number of listings means a "renters market" (high supply), whereas limited listing refers to a "property owners market" with less supply and higher demand. In the latter's case, a slightly higher rate may be justified. 
• Vacancy rates: Vacancy rates refers to the percentage of available vacant properties. A high vacancy may indicate the area is undesirable or the properties are not renting well. In contrast, low vacancy demonstrates that the area is desirable for renters with higher competition for rentable spaces. 
• Market forecast: Market forecasts are predictions of the overall state of the market. Forecasts may examine interest rates, occupancy rates, the number of houses purchased, and more.   

In your research, remember to consider demographics, the surrounding job market, and the migration rate to your area.  

4. Work With a Connected Property Manager 

Suppose you'd rather not jump into the data and time-intensive process discussed above. In that case, a much simpler way to determine an appropriate rental rate is to go through a Chesapeake property manager like Osprey Property Management!

Property managers have access to industry-specific tools like a multiple listing service (MLS) which provides an overview of all rental data across a specific area. Property management groups also utilize the strategies mentioned above to determine rates. 

In this case, it's best to stick with local, experienced, and trusted management groups with good reviews from previous customers.

Use the Steps Above to Set the Ideal Monthly Rent Rate 

Losing money, attracting poor renters, or struggling to cover your ROI and costs can signal that the rent is too low. On the other hand, long-term vacancy and no rental income are some of the adverse outcomes of setting a high rental rate. When determining a rate, employ one or several of the strategies above to avoid both circumstances. 

If you'd like to take the stress out of selecting a rate and set a number that is honest and serves your purposes, reaches out to Osprey Property Management today. Our experience and technologies allow us to determine the perfect rate for your investment property, leaving you and your residents happy! 

Get more expert insights into managing profitable rental properties with our free resource, the "Expert Guide to Rental Property Management."