Maximizing your rental property revenue and minimizing vacancy all starts with the right price. To ensure that you’re pricing competitively, take a deep look into the local market and how other comparable rentals are priced compared to yours. By doing so, you will attract prospective tenants who recognize the value of living at your property.
Vacancy can be extremely costly. It’s often one of the most considerable dents in a property’s yearly budget, but it’s a controllable cost that can be avoided if you know how.
Pricing a property correctly from the start is critical. Sure, you can always reduce the price later, but chasing the market can be dangerous, with minimal reward and considerable risk. The first step to properly pricing your rental property is developing a thorough understanding of the local market.
Understanding the Market
Know the Local Laws
Understanding and complying with local laws and regulations regarding rental properties is essential. Laws vary from state to state and even city to city, so you must be aware of what is permitted in the area where your property is located. For example, in January 2021, the Cook County, IL Board of Commissioners passed a new Residential Tenant Landlord Ordinance (RTLO). This ordinance went into effect on June 1, 2021. The bordering counties with similar housing stock, similar taxes, and comparable home prices may have different requirements – but you’d never know from just studying the market. A quick call or visit to the municipal websites should take care of it.
Know the Comparable Rentals in the Area
Take the time to look at other rentals in your area. Compare what amenities they offer and evaluate how competitively priced they are. Doing so will give you an understanding of which features tenants seek in a rental property, as well as how much they’re willing to pay for them. We’ll go into more detail later on setting the price, but for now, make sure you’re comparing apples to apples by using comparable properties that are as similar as possible.
Consider Seasonality and Local Housing Trends
No two markets are exactly alike, and what’s true in one area may not be applicable in another. Does the temperature drop sharply in your area in the winter? That may slow applicants who want to avoid trudging through snow and slush or move while bundled up in seven layers to avoid the wind chill. (Many landlords will offer a longer lease on rentals available in winter, hoping they can use the extra months to get the end date back in sync with warmer temperatures and better rental markets.)
Setting the Right Price
What Are Comps/Comparables?
“Comps,” short for comparable properties, are essential in setting the right rental price. A comp is a recently rented property similar to yours in several ways. By looking at what comparable properties are renting for and other factors such as size and location, you can get an accurate snapshot of how much you should be charging for rent. Evaluating comps can be a highly detailed process. To get you started, here are a few key points to review to help you price your rental correctly:
- Date rented.
- Number of bedrooms and bathrooms.
- Size and square footage.
- Other amenities, like parking, outdoor space, etc.
How to Find Comparables
There are two main options here. You can go it alone or work with a professional. Let’s look at each.
Working with a real estate professional or property management company is likely the most accurate way to determine what your property should be renting for. They will have access to data on recently rented properties in your area.
- Accurate, reliable info not easily accessible to the public.
- Licensed, experienced professionals can rent the property quickly.
- Experienced property manages can rent the property for a higher price.
- Upfront cost. While the investment will likely net you more over time, you’ll have to be prepared to pay some fees upfront.
- Handing over control of the process. For some, this is a no-brainer, but others may struggle to relinquish control and let the real estate professionals take over.
If you’re going DIY, searching listing sites like Zillow, Trulia, Realtor.com, and Craigslist will show you what’s currently posted for rent. Some sites will also show you past rentals, but the data often needs to catch up, so getting a read on what something actually rented for in the last thirty days can be challenging.
- No commissions or monthly management fees
- You get to personally advertise, schedule with tenants, and be part of the rental process from start to finish.
- Lack of reliable information to base decisions on
- A large margin of error. It’s easy to misprice a property or make mistakes in the advertising process, leading to a chain reaction of negative experiences during the rental application and showing processes.
- You may likely make mistakes.
Determining the Right Price
Once you’ve found comparables, it’s time to establish your price. You’ll want to get the most the market will bear but avoid vacancy by finding a tenant within a reasonable time frame. Consider the factors we’ve discussed so far and ask yourself why someone should choose your property over the currently available ones. If you can’t answer that, it might be time to revisit your comps in further detail.
Finally, remember to stay flexible. Ideally, you’ve priced the property correctly on day one, but the market is constantly in flux, and your pricing should reflect current conditions if they change.
Now that you’ve set the price, it’s time to start marketing to find tenants willing to pay what you’re asking.
Marketing the Property
Nearly all home searches start online, so you’ll make your first impression with high-quality pictures, possibly videos, and excellent copywriting. If you’re in it for the long haul, do yourself a favor and hire professionals to show the property in its best light. You may be able to reuse photos and videos when the property needs to be rented again in the future.
Spend some time reading professionally written descriptions about real estate. You’ll notice a distinct difference between property descriptions with the bare minimum and those that paint a vivid picture of the amenities, features, and potential lifestyle a tenant would enjoy if they decided to become a resident.
Your choice to use a professional or DIY will resurface when marketing your rental online. You’ll be able to advertise on classified sites and a handful of other online resources and respond to inquiries as they come in. Listing the property for rent with a real estate or property management company will allow them to put the property on many websites, which exposes your property to a wider. For example, our company’s syndicated Internet advertising consists of 62 different websites.
Curb appeal is your next opportunity to make a positive impression on potential applicants. Some potential tenants may perform a quick “drive-by” before reaching out to set up an appointment. They’ll be looking to get a feel for the neighborhood and see how the property looks from the outside. Make sure your property lines up with the comps you used for your pricing; the tenants are likely driving by your competitors, too!
Showing the Property
Once you’ve done the work to set the correct price and presented the property in an excellent light, the next natural step will be to show the property to interested applicants. If you’re working with a real estate professional or property management company, they will take care of this process for you. If you’re trying it on your own, you’ll need to impress your potential applicants. Here are three quick tips to point you in the right direction.
- Arrive Early. Arrive early, and ensure you have the correct keys ready to open any doors you must pass through to show the property.
- Prepare the Property in Advance. Before showing the property, ensure the heat or A/C is set to a comfortable temperature. Additionally, make sure all window treatments are in good shape. Turn on all the lights.
- Create the Best First Impression Possible. Look, not every rental property will be worthy of a magazine cover. That’s fine, and if you did the pricing and online advertising well, your applicants will know what they’re showing up for. Nothing ruins a showing like a missing smoke detector or a dirty bathroom, so make sure you go the extra mile and take care of any minor issues before inviting the first tenant in for a showing.
In conclusion, it is clear that when setting a rental price for your property and marketing it to potential tenants, there are many things to consider. From leveraging the power of online resources such as high-quality photos and videos to creating an inviting first impression on showings, each step requires careful thought and planning to get the most out of your investment.
With these tips in mind, you should be better prepared to price your property and find quality tenants who will pay what you’re asking while still feeling satisfied with their decision.
By: Arthur R. van der Vant
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