Are you struggling to determine the right rental rate for your property? This guide on rental rates covers market trends, state laws, operating costs, and tips for calculating how much to rent charge.
How to calculate rent for your property
Do a rental market analysis
A rental market analysis will help you identify trends and compare rent prices for similar properties in your area. For example, the average monthly rent for a 2-bedroom single-family home in Miami is currently $2,999, down from $3,200 the previous year, as an influx of supply has started to balance out the demand for rental properties. Meanwhile, Tallahassee rent prices for comparable properties are up 3.5% over last year as renters priced out of other markets continue driving demand.
When you’re doing a rental market analysis, look for similar rentals within a 1-mile radius of your property. Only compare rates for properties rented in the past six months to account for inflation. Make sure you’re using a trusted data source (rent estimate tool or real estate agent) to help you accurately calculate how much rent to charge.
Factors to consider when comparing similar properties:
- Location and neighborhood characteristics (proximity to transportation, schools, amenities, crime rates)
- Size and layout of the property (number of bedrooms and bathrooms, square footage).
- Average rent price and potential for rental value appreciation
- Market conditions (vacancy rate, rental demand)
- Cash flow potential and ROI
- Management and maintenance costs
Research rent control laws
Landlord-tenant laws for rent control vary by state, so keep that in mind when setting your rental price. For example, rent increases in California are capped at 10% or 5% plus the annual inflation rate (whichever is lower). In contrast, Florida has no restrictions on raising rent prices besides notifying tenants in advance.
Calculate operating costs
The rent you charge should be enough to cover all your operating expenses and make a profit. Add up all of your bills and other costs you might incur for vacancies and tenant turnover.
Common rental property operating costs:
- Maintenance
- Repairs
- Utilities
- Landlord insurance
- Property management fees
- Property taxes
- Monthly mortgage payments
You can use the 1% Rule to get an idea of how much you should charge for rent. This rule suggests your monthly rent amount should be around 1% of your property value. Compare this number with your expenses to see how much money you have left over. Generally, your operating costs should be less than 50% of your gross income. Try to aim for a 10% cash-on-cash return. If math isn’t your strong suit, a rental property calculator can do all the calculations for you.
Determine the value of amenities
You can usually charge extra for rental units with amenities prospective tenants are looking for. In a recent survey, 37% of renters chose smart home devices (temperature control, digital locks, etc.) as the most desirable property feature. Other amenities to consider when deciding how much to charge for rent include:
- Fitness center
- Pet services
- Outdoor kitchens
- Package management system
- Lap and lounge pools
- Community garden
- Co-working space
- Courtyards or rooftop decks
The more value your amenities add, the more you can charge for rent. However, it’s important to avoid overcharging. Your rent price should be in line with properties that have similar amenities.
Adjust rent prices for seasonality and inflation
Demand for rental properties varies throughout the year. Rents may go up during summer and winter holidays, then drop in the fall and spring when there’s less demand. For example, tourist areas often have higher prices for short-term rentals during the peak season.
Inflation also plays a role in determining how much rent to charge. As your operating costs go up, so will your rental rates. Always look at the local market to assess inflation and the average cost of living when setting a rent increase.
Final Thoughts
Setting the right rental rate is crucial to maximizing your rental income. If there’s a lot of competition in your area, consider making some upgrades or offering extras like parking and smart home devices. Many tenants are also willing to pay more for a pet-friendly property.
When it comes to collecting rent, you can automatically accept payments, send reminders, and charge late fees all online with a free Baselane account. Tenants can pay by ACH or card from any device, making it easier for you to get paid on time.
