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The Ins and Outs of Rental Rates

According to FortuneBuilders, most regions of the U.S. are a “Landlord’s Market.” Demand for rentals is on the rise, and therefore a property owner has the pick of the litter when it comes to potential tenants. These tenants are also tending to stay in their rentals longer, meaning consistent income for you as the property owner and less money going toward turn-over.  However, to take advantage of this market, you must be able to set rental rates that will attract quality renters as well as meet your financial needs. There are several factors to consider when setting your rental rate; most of them require you to have extensive knowledge of the area where you’re renting. This information is available to the single landlord but gaining the best information and utilizing it to maximize your investment takes time and experience.

A woman in a suit holding keys in her fingers and a dollar sign in her hand, Market Analysis

What does the rental market look like in your area?

This question encompasses all the things you would want to consider when conducting a market analysis. A market analysis should answer questions such as:

  • How many rental homes exist in your market? Is your area saturated with available apartments for rent or are you going to be the only game in town? This availability can bode well or poorly for you as too many or too few options available to potential tenants can drive down the rates you’re able to charge.
  • How many Single-Family Rentals (SFR) vs. Multi-Family (MF) rentals homes are there? Answering this question not only gives you the lay of the land for what potential tenants expect in your area but also can help shape what kind of experience you can bring to the table as a new landlord in the area. With SFRs it is often the renter’s responsibility to clear snow and maintain the grounds. If there are more SFRs or few rentals in the area this expectation may be more acceptable to a potential tenant.
  • How many of those rental homes are vacant vs. occupied? This question is probably the most important to answer and should be determined before settling on purchasing a property at all. If rentals in your area stay vacant for months at a time, you’ll feel the financial burden and turn your investment into a money pit.

To answer these questions as a single landlord, you can consult websites such as Trulia or Zillow which will give you statistics, or do a simple search for your area, such as “rental market analysis San Antonio.” The latter will bring you both statistics and a written breakdown of what these things mean to you. However, some of the information out there may be out-of-date and will also require you to piece multiple perspectives together to gain a whole picture that’s usable to you.

Breaking Down the Market by the Money

Digging deeper into the market analysis involves getting information about the average square footage of rentals in your area, what the cost is by each square foot, fees that are charged, and comparing the ratio of rent to the price of the home.Calculator and model of a house on a rental application

  • What is the average rent amount per square foot in your market? You can find a general breakdown of the importance of the price per square foot here. But, if that doesn’t give you a good idea, think of it this way: at the grocery store, they give you the price of a gallon of milk as well as the cents per ounce.
    Yes, you’ll look at the pretty packaging and considering the reputation of the brand, but if all things are equal, then it comes down to getting the most bang for your buck. A knowledgeable tenant will be looking for this in comparison to other spaces in the area. As a landlord are you staying within the average cost per square foot? This, of course, varies from location to location, so finding comparable rentals (called “comps” in the biz) in your neighborhood is key, not just a national average.
  • What is the average application fee in your market? Charging fees are all about staying within averages as well. You’ll want to do your best to cover the cost of running background checks and other necessities of tenant screening but including all of your expenses may sky-rocket the cost of your fee and renters won’t be willing to pay it. This coverage in expenditures versus local averages applies to the total of rent you’re charging as well. If you hope to cover the monthly mortgage, but this puts your property well about the average, then renters won’t pay that either.
  • What is the average number of days on the market in your area for rentals? Each day your house is on the market is money out of your pocket. Again, this is something you should be looking into before purchasing your investment property. But knowing what the average turn-around can also help you determine what kind of cost you want to try and make up when a renter does sign a lease. If the average turn-around is only a week then maybe it doesn’t need to be considered in setting the rent, but more than that can add up quickly.

If you’re feeling overwhelmed, considering all these questions merely pertain to calculating the rent you should charge, you should hire a property manager. With a trusted property management team like Real Property Management Campanas, you won’t have to worry about piecing together an in-depth market analysis on your own: our staff is trained to be experts in the community. Once you’ve found your ideal property, we can calculate just the right rate, turning your property into a successful investment. Contact us today for a free property analysis today and see how we can help you achieve your investment goals!

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