One of the biggest challenges with regards to property management is to put the right rental price tag on an investment property. We have seen a lot of landlords struggle to determine what their properties should rent for, particularly at the beginning of their real estate investment career. Let’s assume you have an investment property in Fair Oaks, CA for the purposes of our discussion here.
When you are buying or selling a home, it is fairly easy to estimate the selling price. Thanks to the plethora of information available on the Internet about comparable housing prices in almost every neighborhood, this information is widely available. However, there aren’t many resources online to come up with the right rental price for your property. If there are any, the information provided by them is not reliable in most cases because the rental price depends on a variety of factors.
Determining the right rent is one of your most important obligations as a landlord. You need to make sure you are charging the maximum amount of rent without running the risk of increasing the vacancy rate.
Comparable rent is the most widely used method to come up with the right rent price.
You or your property manager will need to find out the rent charged by other comparable units. If a landlord is charging $1500 for a unit of similar square footage and condition, but has a 50% vacancy rate, then you know that he is charging too much and has a lot of empty walls to look at.
You need to compare with properties of similar square footage, floor level and even layout. Many investors charge per square footage for rent although this is used almost exclusively for commercial properties and not so much for residential. In this method, you can set a fixed amount of rent per square footage.
You need to compare properties based on the amenities they offer. Apartments with a garden view are more desirable than those with a view of a busy thoroughfare. Units with modern appliances, granite countertops and hardwood floors are more desirable. Typically, for apartments, higher floors are more desirable as well.
Understanding how different aspects of your property can translate into more rent is a trick that you will have to master over a period of time or you can hire a property manager for your Fair Oaks CA investment to take care of this for you.
Go through online advertisements
Most landlords advertise their properties on websites like Craigslist. You should go through the listings on these websites and look at how much rent other landlords in your area are asking for. It would be better to visit these properties and compare their features with those of your property to apply the comparable rent formula.
There are many other factors to consider while determining whether you can increase the rent or not. Keep an eye on developments in the job sector. When a lot of people are moving to your area in search of jobs, then rental properties will obviously be in high demand. Plan your rent increase accordingly. You can judge the rental market’s condition by looking at the competition among rental applicants. Desirability, of units depending on amenities, size, location and condition will also have a huge impact.
Make sure you carefully evaluate these factors before making any decision with regard to increasing the rent. If you are good at this evaluation, then you can even get away with rents slightly higher than other comparable rental properties in the area.
But if you make a wrong step, you run the risk of increasing vacancy that will have an adverse impact on cash flow.
For example, if you increased rent by $100 per unit for a five unit building and if your decisions lead to a single tenant moving out, it can cost you dearly, particularly if it takes some time to fill the vacancy. If the rent per unit is $1500 dollars, a couple of month’s vacancy can result in a loss of $3000 in NOI.
However, there will be cases when you may want to incur short-term losses to have long-term gains.
Don’t forget to take into account laws related to property management in Fair Oaks CA to know how and when you can increase the rent.
A property management agency can also help you in determining the right rental price for your property. If you’re looking for a property management company to help you with your investments we’d be happy to help you out!