A common question amongst landlords is how to best maximize the lease price of their units, while remaining competitive in the marketplace, and minimizing any vacancy. We’ll show you a quick and easy way to find the sweet spot and start getting those units rented.
1. Rent Rate Analysis Tools (Zilpy, Rentometer)
If you have management software, many come with rental pricing tools. Other options include using an online tool for evaluating rental rates, such as Zilpy.com or Rentometer.com (a little less reliable). These tools can be useful when gauging a rental range, but can often times be hit or miss. Keep in mind that these types of sites and applications use algorithms to provide a rental estimate, which are not 100% reliable. Thus, we use these tools for our initial estimate.
2. Look at the Comparables (Both Leased and Currently Available)
Now that we have a good range to work with, we dig into more detailed a analysis. If you have access to the MLS (real estate agents), that can be sueful to see what has rented in the area, but sites like Zillow.com have become incredibly prevalent for aggregating useful information. Enter in the address and search for comparable rental units in the area which are actually currently listed for rent! This will give you some good insight as to what the market rates really are and you can see how well they agree with the range you had previously attained. A key reason that we look at both this and the analysis tools, is because we have found that at times, either one by themselves may not be accurate and/or may not portray the whole picture.
Take a look at properties with similar bedroom and bathroom counts, especially ones closer to your unit and in similar areas. Often times the rental rate you will find from both sources have some overlap, but at the end of the day, they disagree by potentially hundreds of dollars per month (thousands per year)!
For this reason the third step in the process serves to resolve any discrepancies between the first two rental rate estimation methods, to provide us with the optimal rental rate for your unit.
3. Use Knowledge of Your Property and Area & Combine Approximations
The true market rental rate will depend greatly on how your property compares to other available rentals in the area:
- Is your property newer or updated?
- Is your property in a neighborhood renters are actively looking?
- Is your property located near a school?
- Is your property conveniently located to stores, restaurants, and other conveniences?
- What amenities does your property have?
- What utilities (if any) are included in the rent?
And the list goes on…
You have to incorporate some qualitative analysis into our assessment. Often prices can differ from street to street. These subtle details highlight the importance of local knowledge, the need to find comparable units in the area, and to utilize a tool such as Zilpy.com. The algorithm in estimators typically wont account for these nuances. You may find the comparables on Zillow to be more reliable than an estimator in instances like this.
4. Push the Limits
So when all is said and done, where do we set the rental rate for our unit? If we set it too low, the unit will rent quickly, but we will lose hundreds of dollars in potential rental revenue each month! At the same time, if we set the rental rate too high, we risk our unit standing empty, which can lose us around a hundreds of dollars each day!
A good way to approach this is to push the upper limits of a reasonable rent, trying to get the most the market will bear but pricing it realistically. If you don’t get any activity in the first few days, drop it immediately to the middle range of what you determined was the market value for the rental price.
Overall, setting the optimal rental rate is a careful balance of using the right tools, having the necessary information, and then leveraging your own personal judgment and experience into the equation.
This is the four-step process that has served us well, and we hope that you find it beneficial as well! If you have questions about managing your rental property to maximize the rent rates, don’t hesitate to reach out to us with any questions.