How Much Rent Should I Charge?
Wondering how much rent to charge? If you’re a landlord, this is a very common question, perhaps one of the most important! For the answer, click here to read more!
With housing inventory limited in the Seattle area, it is a great time to hold on to your real estate property. With demand comes an increase in property values that can mean big profits down the road.
Putting your property up for rent is a great way to keep the mortgage payments covered while you relocate or downsize. You might be wondering ‘how much rent should I charge?’
Check out this guide to determining rent prices in your area.
How Much Rent Should I Charge?
The U.S. Department of Housing and Urban Development (HUD) offers a tool that estimates fair market rates each year. This tool is a guideline for landlords to help them research fair housing costs in their market.
Start here when beginning your research on rent prices in your area. For example, in King County, the fair market rent for a three-bedroom unit is $2,993 per month.
But the HUD rent tool doesn’t go into much detail by neighborhood or local amenities. For more accurate information on rent prices, you’ll need to do more digging.
In many markets, it’s not a question of how much rent should you charge as much as how much you can charge. Local markets also dictate rent prices based on the amount of inventory available.
If renters have a lot of options, rent prices are likely to go down. When housing inventory is low, rent goes up.
Research your local real estate market to find out where you stand. Depending on how soon you need to rent your place, you can test out pricing options by listing your property for rent.
Search for properties in your area with a similar number of bedrooms and bathrooms. Use these rental prices as a guideline for your listing.
Location, Location, Location
Submarkets matter when it comes to renting out a property. Desirable neighborhoods are more likely to attract renters who aren’t shopping based solely on cost.
These renters place quality of life over cost to be in top areas. In this case, you can start with slightly higher rent prices when marketing your property.
In addition to nearby amenities, school systems play a big role in neighborhood desirability. You can set higher rent prices in neighborhoods with award-winning schools.
Families will flock to these areas but demand is usually in limited supply. Walkability and parks are also a boost when it comes to setting rental prices near top schools.
Calculating Rent Costs
There are some housing markets in the Seattle area that don’t see demand nearly as much as in town neighborhoods or have no nearby properties for rent. If your rental property falls in this category, use the one percent rule to determine fair rental pricing.
This rule states that you should aim to charge around one to two percent of your mortgage amount. For example, if your mortgage is $150,000, renters would pay you $1,500 each month.
This percentage could be lower or higher depending on housing costs in your area. In markets where pricing is inflated, like San Francisco, homeowners wouldn’t be able to charge one percent of mortgage costs because the median home price is $1.36 million.
What About Rent Seasons?
Seasons do matter when it comes to setting rent costs. The biggest demand for rental properties is in the spring and summer.
In the winter, people are less likely to move especially if they have children. When school is out in the summer, it gives families a chance to make a smooth transition between school districts with little disruption.
Areas like Seattle experience winter weather that makes moving during the cold weather months a hassle. Be patient with renters who contact you during the winter.
It can take as much as 90 days for them to make a final decision to move into your property. Offering a rent promotion could persuade renters to move faster.
Half off the first month or a shorter rental period are both great options to filling vacancies without making you lose money. Shorter rental periods are helpful because it can mean freeing your property up for peak season when you can get higher rents.
Always Be Fair
Never let greed dictate what you charge in rent. Fair rent is a win-win situation for landlords and tenants.
One of the top concerns landlords have is collecting rent on time. If the rent you charge is too high for your area, it can make monthly payments harder to collect.
The high cost of evicting a tenant cuts into your rental profits in legal fees and uncollected rent. Each month the eviction isn’t finalized, is a month you are responsible for paying the mortgage on the rental property.
It’s much cheaper and more convenient to simply set a fair price in the beginning. Fair pricing also applies to rent that is too low for the market.
It may be tempting to lower rent prices in order to quickly get a vacancy filled, but it could attract the wrong tenants. Use the average income of the people in your community as a guide.
If your rent is higher than what your neighbors can afford, it’s not worth listing for your home.
Becoming a Landlord
Becoming a landlord can be a lucrative venture in the right housing market. If you are still wondering ‘how much rent should I charge’ after researching the Seattle area, it may be necessary to partner with a property manager who knows your local market.
Property managers have experience screening tenants, setting rent prices and enforcing lease agreements. For more information on listing your property for rent, contact us today.