Once you decide to rent out your property, one of the first things you’ll need to do is determine the rental price. The rental price needs to be at par with comparable rental properties in your neighborhood. The last thing you’ll want to do is underprice or overprice your rental property.
Charging a proper rent amount will help you meet two goals. One, it’ll help you keep your Austin rental property desirable in the eyes of prospective tenants. And two, it’ll help you maximum the return on investment.
Determining the right rental amount is a process, though. The following are a couple of things you’ll want to keep in mind.
1. Check what similar rental properties are charging
Look what your competitors are charging in order to know what to expect. Of course, go for similar properties. The following are a couple of things you should consider during this process.
One, consider the neighborhood. Look for homes that share the same neighborhood with yours for a good estimation. Two, look for properties that have the same number of bedrooms and bathrooms as yours.
Three, factor in the property type. Whereas two properties may share the same size, the type of property may have an impact on the rental price. Generally speaking, single-family homes are more expensive than multi-family homes.
Another thing to consider is whether your home is a new- or old construction. Obviously, prospective tenants will be willing to pay more for a new construction property.
You can look for comparables in a number of ways. You can simply go online and key in the relevant search terms on sites like Trulia, Zillow, and HotPads. These sites usually have filters which you can use to narrow down to exactly what you’re looking for.
You can also look for comparables in person. Then, interview the landlords on how much they are renting them for. You can also use that opportunity to find out other crucial details, such as the average vacancy periods.
Last but not the least, you can hire a property management company for an opinion. An experienced property management company will have a good idea of what is renting out quickly in the area and how your Austin property compares to the competition.
2. Factor the amenities in the rental price
Of course, different properties will have different amenities unless the units are exactly the same. The pricing should be in such a way that it reflects the desirability of the unit.
The following are a couple of amenities that will have an impact on the rental price.
- View: An apartment with a view of the parking lot will be less desirable than that with a garden view
- Upgrades: Obviously, a unit that has upgraded features will be more desirable than one without. Examples of these include updated appliances, an open floor plan, and hardwood floors.
- Size: A bigger home will obviously command a higher rental price.
- Extra Storage Space: Homes with extra storage spaces will be more desirable than those with limited space. This is especially true for prospects with families.
- Parking Space: Adequate parking is one of the most important amenities that tenants look for.
3. Factor in your expenses
The goal of investing in a rental property in Austin is to make a profit. However, you won’t be able to make a profit if you operate at negative cash flow. When operating at negative cash flow, it simply means that your expenses exceed your profits.
As such, you’ll want to price your property in such a way that you are able to earn a decent profit from your investment. Common rental expenses to keep in mind include:
- Advertisement and marketing fees
- Leasing commissions
- Repairs and maintenance
- Renovation expenses
- Travel expenses
- Homeowner association fees
- Licenses and permits
- Professional fees
- Mortgage interest
- Insurance fees
- Property taxes
- Property management fees
A general rule, according to Zillow.com, is to expect the annual rental expenses to be 1% of the property value. If your Austin rental property is valued at, say, $200,000, then expect rental expenses to amount to about $2,000 annually.
4. Examine the market demand
Once you have priced your rental, the next thing to do is to see how the market reacts. Are prospective tenants calling to schedule a viewing? If not, then the rental price is probably to blame.
If you overcharge tenants, they will steer clear of your property in favor of other reasonably priced alternatives. Also, if your property doesn’t have the amenities or the right location to back up the high rent, prospects will continue with their search.
In addition, rental prices are dynamic. The market demand is what determines how much rent to charge tenants. If the economy is bad, rental demand will go high. Why? People will no longer be able to afford buying homes and will be forced to rent instead.
A bad economy may also mean greater demand for smaller, cheaper homes as people may want to downsize.
Seasons also determine the rental demand. During the summer months, rental demand is usually higher. And the reason for this is fairly straightforward. A number of life changes typically occur during this time.
It’s usually the time when graduates are seeking a place to stay as they start their careers. It’s also a time when high schoolers are leaving home for jobs or college.
5. Hire a property management company
There is a lot that is involved when it comes to pricing a rental home. And if you’re just starting out, hiring an expert may be the best decision you can make.
A good property management company will help you carry out a comprehensive market analysis to help you charge the optimum rental amount.
Charging tenants the right rent amount is key to running a profitable rental investment property in Austin. If you need expert help, Bigham & Associates can help. We have been helping residential property owners in Austin maximize their income since 1987. Get in touch to learn more!