Fight your greed - choose Right rental priceTopic: Rental property
Setting your rental price is an important decision and what you decide depends on many factors. If you have taken over a rental property with tenants in place, you may not need to market a rental right away. However, you should know the rental value when you purchase the property. You may choose to raise your tenants' rent appropriate to the market.
If you price the property too high, it will sit vacant and you will have a loss of income that you will never be able to recapture. Usually, you need to price your rental according to the current market. Tenants who are willing to pay an above-market rent for a property usually have bad credit or have been forced to move. Of course, if your market has more demand than supply, even with a high rent, you probably will receive several applications as bidding wars occur.
Find out what comparable units in the area rent for by checking sources where other landlords advertise. A comparable property is a property that is similar to your rental property. They may be located right in the same neighborhood or they may be similar but located across town or in a nearby city. Also watch the advertisements for a week or two. You may find that the properties aren't renting at the higher price and only disappear from the ads when their rental rate has been reduced to the appropriate level. Drive around the area. Do you see banners saying, "move-in special," "special rates now," "ask about our incentives"? If so, this tells you that supply is higher than demand and you will need to be at the lower end of the market to rent your property quickly.
Plan to raise current tenants based on their length of time at the property, condition of the unit or the property, and the current rental agreement. When purchasing a property with a tenant already in residence, be sure to read the rental agreement prior to proposing any rent increases.
Ways to determine your market rent Not sure how to price your rental? Try the following tips:
■ Pick up the local newspaper in the area of the available rental. Go through the section where you find properties for rent. Highlight the ones that sound similar to yours and make a few calls to get the location and drive by.
■ Search the Internet for available rentals by entering the city and the type of rental.
■ Call a local property management company and offer to pay them for an hour or two of consultation. Have the rental agent or property manager meet you at your available rental. The key is to offer to pay for the service. See Chapter 16 for more on hiring a property management company.
■ Go to a few local property management Web sites and look up their available rentals. They usually provide addresses, current rents, and even photos of the comparable properties. If you just purchased the property, there will be some rental comparables in your appraisal report.
■ Call on properties nearby from the "FOR RENT" signs placed in front of the units. Ask the person who answers how much he or she is asking for the rental. When calling, you have two choices: You can ask the questions as if you were the prospective tenant, or you can introduce yourself and let them know you own a property nearby and you are conducting a market analysis. I recommend being honest, as you usually can get additional information and sometimes more information than you expected.
When setting your asking price, do your homework to find the market rent, and then stay at the lower end of the market. This will be one of the incentives that will draw a prospect to your property rather than the similar one for more money. Having your rental price just under the market will save you time and money while finding a tenant promptly. Consider your financial needs and market situation to choose the right final price to ask.