by Julie Broad
One of the most important things you can do before you buy a property – and then again at any time you find yourself putting tenants in that property – is estimate the rent rate you can charge.
If you set the rent too high you’ll have trouble finding and keeping good tenants but if you set it too low you’ll be leaving money on the table that could have been profit for you!
So how do you make sure the rent rate you think you can charge for a property is fair market rent?
First of all … you need to look around the area.
How much do similar units rent for in your neighborhood?
You can do most of this research from your home … although you’ll have a better sense of the area and the rent rates if you actually walk around
But first thing… go online and check the local online postings for places for rent:
- http://www.viewit.ca (for Toronto, Canada).
There are tons of websites have local apartment and houses for rent. Do a quick Google search for your area to find the ones that are most used in your area and then check out what is on the market and at what price.
Next walk around the area of the property.
Look for “for rent” signs. Pull out your cell phone and call them and find out what they are offering. Find out what amenities they mention first.
If you don’t want to call then and there write the number down … or even better take a picture with your phone so you have the number on the sign and what the property looks like.
In many areas it’s still worth picking up a local newspaper to see what is advertised. These days it’s mostly just professional property managers that still use the paper to advertise unless there is a good quality online classified ad section that goes along with the newspaper ads. We test it out every once in awhile and just find that we pay a lot for very few leads … with online ads we pay almost nothing and get dozens of great prospects.
Finally, ask people who are area specialists.
We ask realtors and property managers we know. Most of the time they both can tell you, for example, what a 2 bedroom condo will rent for in that area or a 3 bedroom home
First of all … make sure you are comparing properties of the same size. Find out the number of bedrooms, bathrooms, availability of laundry, parking and other important features tenants ask about. Then find out more specifics like the exact location of the property relative to transportation options and shopping. Also compare the exact size … if you compare a 600 sq foot 1 bedroom plus den property to an 1100 1 bedroom plus den property you aren’t comparing apples to apples.
Specifically take into account:
- Location of the property in proximity to amenities like schools, shopping & recreation,
- Square footage,
- Number of bedrooms,
- Number of baths,
- Utilities included or not?
- Availability of a garage or covered parking?
- Amenities included like a washer/dryer, yard, storage space, deck, fireplace?
- Are pets allowed?
Once you have done all of this you should have a very good sense of your rental market area and the average rent rate so you’re ready to set the rental price.
Determining a fair rental rate can be a tricky task though. Too high and your unit sits unoccupied; too low and you’ve lost vital income.
In general, you want to be in the middle of your neighborhood’s rental range.
Knowing the average rate and what similar properties rent for will give you a good idea of what you can charge. It’s also a good idea to have the sense of the local competition and how many units are available for rent on the market. If the area market is flooded with available rentals, you may have to lower your rent to draw tenants. If the rental market is tight then you can probably go for a slightly higher rent.
This will help you know which direction in the range you need to go, but what if you’re not sure?
You can always test the market. Your gut feeling about the rent you can charge at this point is probably right but you can always put an online ad out there on the high end of what you think you can get. If you decide to do this you have to react quickly … you want to make sure you rent your property quickly so drop the rent quickly if you haven’t started to receive responses within 48 hours… and drop it by at least $50 to make a difference in the responses you are getting.