HOW TO DETERMINE THE RENTAL RATES TO CHARGE YOUR TENANTS

Welcome to the channel and welcome back to another video. Now in this video I want to talk to you guys about how to determine what you're going to charge for rents when you own property or when you're managing property. You have to figure out how much you're going to charge for your rental property. I've had two questions in the last couple of days so I thought I would put together a quick video explaining how to determine what your rental property should rent for. What you should be charging for rent. Now I'm going to give you five ways to determine how to make that decision on what you're going to charge. Now these are things you really have to think about when coming up with a dollar figure. Pay attention to number three because number three is the primary way that most landlords or property managers come up with what they're going to charge for rent. My name is Eric and I write a blog over at smartmoneybro.com. When you get a moment take a look at that blog and feel free to sign up so you can receive our latest blog post twice a month. I also work one-on-one with individuals helping them with all types of money issues. Everything from budgeting your money on a monthly basis, setting goals with your money, growing your money, investing your money, buying real estate, growing your real estate portfolio or even just managing your current real estate portfolio. So if you're interested in that I also give a free 15-minute phone conversation for anybody. You can find out how to get in touch with me in the notes below this video. But in this video it's all about determining exactly how much you're going to charge for rents on your rental property. So I said I'm going to give you five things. Here they are. Number one, the very first thing you have to do to help you determine what you're going to charge for your rents is you have to do your research. And when I say your research I'm talking about the market where you're going to be renting your property. You have to know things like the city, what's taking place in the city, what's going on in the city. You have to know things about your planning and zoning, what's actually coming to the area where you're going to be renting your property. Is there going to be a new building built or are they tearing down buildings? Are they building new houses? Is there a new subdivision? Is there an old subdivision that's going away? These are the types of things you need to know in order to help you determine what you're going to charge for your property. You'll also want to know things like the crime stats. How is the crime in the area? What about the schools? What type of school district is your property in? One of the worst things is for somebody to go rent your property and say, how are the schools here? And you are so detached that you don't even know what the schools are and what the local high school is or the local middle school. These are things you need to know because they're going to help you determine whether or not you should charge a little bit more for your property or a little bit less for your property. The more you do your research and know the location in which you're renting your property, the better off you'll be and the more informed you will be when making the decision. The other thing to think about in terms of your research is what is the value of your current property that you're renting out? Is it worth $75,000? Is it worth $500,000? You ought to have a feel for the market once you do your research to help you understand exactly what your property is worth right now in the current market that you're actually about to rent the property. Knowing the home's value will help you determine what you should actually charge for rent. And finally, when it comes to doing your research, you want to have an idea of what are the average monthly utility prices for your property. What's the average monthly water bill? What's the average monthly electric bill? What's the average monthly gas bill? What does trash pickup cost if it costs anything? These are all the things that you're going to find out about your rental property that you should know. And if you don't know, that's cool. But when you go to determine what you're going to charge for rent, these are the types of things that you want to know because they're going to help you build your case for your price so you know exactly what to charge. Number two, the second way to determine what your rental property is going to rent for or what you should be charging for rent is what we call the 1% rule. The 1% rule basically says this, whatever your home value is at the current time in the current market, you charge about 1% of that for your rent. So in other words, for example, if your property is worth $100,000, then 1% of $100,000 is $1,000. So your rent should probably be right around $1,000. If your property is worth $500,000, 1% of that is $5,000. So you should probably be charging about $5,000 per month. Now there's some other variables to keep in mind, but we'll talk about those in a moment. Conventional thinking in terms of landlords and real estate folks, is it anywhere between 0.08% and 1.1%. I like to round that down and most other landlords and property managers round that down to about 1% of the current value of the property right now in that location. Number three, the third way to determine what to charge for rent for your property is my favorite. And it's the way that most landlords and property managers figure out what they should be charging for rent. And it is simply finding comparable properties in the area where your property is located. Now, this is my favorite because it works every time. How do you figure out what other rental properties are renting for in the area where your property is? You just go to a source where many properties are currently being advertised, whether that's Facebook Marketplace or Zillow or Realtor.com, whatever the general place is where you know that properties are being advertised, you go to that place and you look for comparable properties in the area where your property is located. And you see what those landlords are charging. So if you have a three bedroom, two bath home in a particular area, you would call up other landlords in that area and say, how much is your rent? Or you can go do the research and find out what they're actually renting them for without calling them up. Or you can call them if you want to have that phone conversation, but you want to know what they're charging. Now, when you find out what most of them are charging, let's say they're charging between 1200 to 1300, then you need to consider charging, depending on some of the other things we'll talk about, maybe charging slightly lower than what everybody else is charging. And the reason you might want to do that is because it's going to make you competitive. If you overcharge, many people are going to pass you up as a property. If you undercharge by too much, people are going to wonder why is he charging or why is she charging so little? So just about just slightly below what the market is charging is always a good sweet spot to be at. But that's a decision you have to make. But like I said before, number three is my favorite. And it's the way that most of us figured out is we look to see what everyone else is charging that has similar amenities, similar location, similar bedrooms, bathrooms, similar size, etc. Once you figure that out, that will put you in that sweet spot to know what you should be charging for your rental property. Number four, the fourth way to figure out what you should be charging for your property is be sure that you at least cover all of your expenses. And expenses on a rental property can be everything from homeowner association fee to the property taxes, to the property's insurance, to maintenance and repairs, to whatever mortgage you may have on the property if you have a mortgage. So there's a lot of expenses that go with having a piece of rental property. You want to make sure that you're charging at least enough to cover all of those expenses. Now, hopefully those expenses don't go above what the market rate is currently charging, like we said back in number three. But whatever you do, you always want to make sure you're covering your expenses because renting rental property is like having a business. In fact, it is a business. So treat it like a business. And what do you want to get from a business? You want to get profit. So you can't get profit if your expenses are more than what you're going to be bringing in for rent. Number five, the fifth thing to consider is you have to make sure you're considering all of your amenities. If you have a pool in the property, if you have laundry facility or washer and dryer, if you have a fenced backyard, whatever it may be, you need to make sure that those things are considered as part of your amenities when you're actually renting out the property. So parking, ceiling fans in every room, whatever it may be. I don't know whether you're in Florida or you're way up north in Minnesota. Some of those amenities that people like in your area could be different, right? Are you right across the street from an elementary school? Are you right near a busy street? Because a lot of people don't like living near a busy street, the noise, the possibility of their kids getting hit by a car. So you have to adjust your rents accordingly if your house faces a busy street. So these are all things that you got to consider with number five years. Think about the, not only the amenities, but all of the special circumstances surrounding your property. Those are the five things you have to consider when determining how much you're going to charge for rent. Just to recap, number one, do your research, know as much as possible about the market where your property is located, what's coming, what's going, the schools, what's taking place in terms of what's being built around the property, what's being torn down around the property, what's the general crime rates in the property, know all of that stuff. Number two, the 1% rule, kind of a foolproof way of knowing what to charge. You charge for rent 1% of what the current market value is of the property. Again, if the property is worth $200,000, you charge $2,000 per month. If the property is worth $150,000, you charge $1,500 per month. Number three, we said local rents. What are similar properties in the location where your property is located? What are they currently renting for? On number four, we said, make sure you're covering all your expenses. Number five was consider the amenities that you have. Not just the good amenities, but some of the bad parts too, that you got to consider when renting your property. Maybe it's not the greatest location in the world. Maybe the crime rate is a little bit higher there, et cetera. Or maybe you live two doors down from a park, or there's a church right across the street, whatever it may be, you figure that out. Those are my five things, five ways for you to determine exactly what you should charge for your rent. If you got anything at all out of this video, do me a favor, smash the like button and become a subscriber. We put out videos about twice a week, whether it's about money or whether it's about real estate. Listen, the best person to take care of the old you is the young you. Take care of yourself and take care of other people. Until the next video, peace.