Setting your rental price is all about balance. If you place your price too high, you may scare away qualified tenants. If you set your price too low, you can hurt your potential income. Read on to find the rental price sweet spot.
Create a Rent Minimum
Start a spreadsheet to include a list of costs for your rental property. Your costs will likely include:
- Mortgage payment
- Property taxes
- Utilities
- Maintenance
- Insurance
- License, permit, and/or certificate of occupancy
- Fees (HOA or COA, if applicable)
- Marketing and advertising
- Tenant screening
- Property management service (if you plan to use one)
Once you have added your costs, you can identify the bare minimum amount you would need to break even. While some of these costs may only occur once a year, others are ongoing. It’s important to remember that your investment property should never put you in the red. Set your price to help ensure you are making some profit.
Identify Competition
Landlords should identify rental competition by taking advantage of popular rental websites. Sites like Zillow, Trulia, and Redfin show available houses for rent and what they rent for. You can often get an inside look at pictures of the home to help you compare your property.
You can also talk with your real estate agent to help you run a Rental Market Analysis (RMA) to see what comparable properties are renting for. They have access to the multiple listing service (MLS) which offers property data for all properties, including ones that may not be listed on popular housing websites.
It is a good idea to have at least 5 comparable properties to determine your rental price.
Compare Amenities
An RMA will also give you accurate detailed property information to compare to your rental. Features like lot size, age of the unit, location, number of bedrooms, number of bathrooms, parking, and access to special amenities can help you to determine which houses are most like yours and what they are renting for.
Here are some top amenities to look for:
- Located near a major roadway for easy access to work or school
- Top rated schools
- Access to a gym, pool, or clubhouse
- Garage or designated parking space
- High walkability score
- Safe neighborhood
- Home security features
- Upgraded kitchen, bathrooms, and/or flooring
- Gated community
Compare Location
When finding similar properties to compare rental prices, location matters. Here are some things to consider:
- The closer the comparable property, the better. As a typical rule, try to find ones less than 1 mile away.
- If your property is next to a railroad, a busy street, a sanitation plan, a commercial area, or underneath power lines, that will lower the price you can command.
- Make sure the comp is in the same community. Sometimes prices can vary wildly even just across the street. An upscale community could be 1/4 mile from a lower-class community—that doesn’t mean they are good comps for each other.
- Check the proximity to local schools, shopping, and parks. Some households will spend more to be within walking distance.
Check Fair Market Value
The U.S. Department of Housing and Development (H.U.D) estimates fair market rent using current market conditions. While this is typically used for the Housing Choice Voucher program, it can still give you a good baseline for rental prices in your area.
However, be sure to conduct research specific to your neighborhood to ensure you are getting the most value for your home.
Review The 1% Rule
Some landlords use the 1% rule which says that rent should be 1% of the property’s value. For example, if your rental property is worth $350,000, your rental price would be $3,500.
While this can be an effective general guideline, this rule doesn’t factor in average rental prices, property taxes, rent control laws, amenities, or many other elements necessary in deciding what to charge for rent. It also doesn’t factor in the record-high home prices from 2020 to 2022 with the median sales price rising 27.5%.
It’s best to use the 1% rule to help influence your rental price decision rather than make it your sole deciding factor.
Consider Seasonality and Location
Nearly 45% of all moves take place between May and August. Rental prices are typically higher during these months, but there is often more competition. Depending on when you complete your rent price research and when you plan to list your property, you may need to make some adjustments.
Rent prices may also vary based on your location and ideal tenant. For example, if you live near a college campus, prices may be more expensive during the months leading up to the start of each semester. Months like June and January may be less expensive as landlords try to avoid vacancies.
When To Offer Below-Market Rent
Landlords should consider offering below-market rent in competitive areas or during slow periods. In the long run, it keeps tenants happier and staying longer, avoiding costly evictions. You want “A” level tenants to stay as long as possible. Charging $50 below market value may make sense, as long as it doesn’t hurt you financially on a month-to-month basis.
How Do Rent Control Laws Affect My Rental Price?
Some states and localities have rent control laws that restrict how much rent you can charge and how much rent can increase each year.
Rent Control by State
Learning your local rental rules will help you to determine how to set your rental price. If you start at a lower rate, you may have difficulty raising your rent rate in the future.
Look at Median Rental Price in Your State
Here is the median rental price in each state:
| State | Median Rental Price |
| Alabama | $1,445 |
| Alaska | $1,850 |
| Arizona | $2,061 |
| Arkansas | $1,350 |
| California | $2,920 |
| Colorado | $2,210 |
| Connecticut | $1,950 |
| Delaware | $2,000 |
| Florida | $1,790 |
| Georgia | $1,935 |
| Hawaii | $2,399 |
| Idaho | $2,073 |
| Illinois | $1,785 |
| Indiana | $1,395 |
| Iowa | $1,050 |
| Kansas | $1,200 |
| Kentucky | $1,295 |
| Louisiana | $1,395 |
| Maine | $2,200 |
| Maryland | $1,856 |
| Massachusetts | $3,000 |
| Michigan | $1,335 |
| Minnesota | $1,537 |
| Mississippi | $1,410 |
| Missouri | $1,271 |
| Montana | $1,925 |
| Nebraska | $1,303 |
| Nevada | $2,000 |
| New Hampshire | $1,930 |
| New Jersey | $2,500 |
| New Mexico | $1,650 |
| New York | $3,400 |
| North Carolina | $1,850 |
| North Dakota | $831 |
| Ohio | $1,250 |
| Oklahoma | $1,360 |
| Oregon | $1,840 |
| Pennsylvania | $1,500 |
| Rhode Island | $2,195 |
| South Carolina | $1,775 |
| South Dakota | $1,025 |
| Tennessee | $1,783 |
| Texas | $1,895 |
| Utah | $1,873 |
| Vermont | $2,500 |
| Virginia | $1,990 |
| Washington | $2,150 |
| West Virginia | $935 |
| Wisconsin | $1,100 |
| Wyoming | $1,100 |
| *National Average | $2,095 |
* Average price via Zillow September 2023
How Often Can Landlords Raise Rent?
These states have specific laws about how often landlords can raise rent:
| State | Maximum Frequency of Rent Increases |
|---|---|
| California | Twice per year |
| Colorado | Once per year |
| Delaware | Once per year (mobile homes only) |
| Idaho | Once per 6 months (mobile homes only) |
| Minnesota | Twice per year (mobile homes only) |
| New Jersey | Limited by rent control in many cities |
| New York | Rent controlled: Once per year Rent stabilized: Every 1-2 years (depending on lease term) |
| North Dakota | In some situations, rent cannot be increased within 6 months after the sale of a mobile home |
| Oregon | None during the first year of the tenancy |
| Washington D.C. | Once per year |
States not listed here can raise the rent as often as they like, but only at the end of a lease.
How Much Should I Charge for Late Rent?
Landlords must check local and state laws to determine if they have restrictions on how much you can charge. Typically, a fee of 5% of the total rent is standard.
Some landlords offer a grace period of up to 5 days without fees or penalties. This helps with common mail problems, human error, bank issues, or if the tenant is late receiving their personal monthly income.
If there are serious payment issues, it is better to catch them early on. If non-payment leads to eviction it is better to handle this before the renter is 6 months late with rent. Charging a late fee keeps the renter from feeling relaxed about paying late.
Should I Offer a Rent Concession?
A rent concession is a special offer from the landlord or property manager that helps to attract potential tenants or retain a good tenant. Depending on the time of year you list your property, you may want to consider offering a rent concession to avoid vacancies.
Examples of rent concessions include:
- A month of free rent
- Gift cards
- Moving assistance
- Yard maintenance services
- Access to amenities
- Upgrades to your property
Rent concessions can affect your bottom line. But, the cost of a rent concession may outweigh the cost of vacancy.
For example, let’s say you offer a $300 Visa gift card to a highly qualified potential tenant. If they sign the lease, you will receive $2,500 in rental income. If that $300 avoids a vacancy, then it’s money well spent.
Does It Ever Make Sense To Break Even on Your Rental?
It depends on your goals. It’s fine if you think the property has high-growth potential and you can afford to not turn a profit.
But, you should also consider the cost of emergencies – if you break even most months, but then have a $2k bill another month, you’ll be seriously in the negative overall.
Most landlords are looking for positive cash flow in addition to long-term equity gains. The perfect balance is a cash-flowing property in a high-growth area.
