I am not saying making rental property deals are easy. But I don’t think it’s the hardest part.
The hardest part is appealing your property to the wide range of tenants.
This is where most investors make mistakes and as a result, either they get way less than they should or they demand too much and lose tenants.
Here are 3 simple rules to help you set a reasonable rent for your property.
1.Cover the base
This is kind of a no-brainer but many seem to forget it.
First of all, to set a reasonable price for your rental property, you need to ensure you get the base expenditure return.
The base expenditure includes everything that you need to pay to ensure the place runs and works smoothly. Meaning to say, you have to consider what you might need to pay so that your tenant doesn’t run away.
Besides, you have to pay the debts, keep that in mind. So, in short, these are the bare minimum that you need to collect, just to ensure you are not in the “loss” zone.
2. Plus the Profit
Okay, you have included you’re the base expenses. Now you need to add the amount for profit.
This additional part will be your profit after all the expenses.
Before you ask me what should be the profit amount, let me tell you there’s no fixed percentage. It depends on several factors.
- The area
- The property type
- The targeted people
You need to do a lot of research before you figure out this part. Check the neighborhood and see rates for similar properties. This will give you some idea on what should be your profit.
Secondly, you need to think about your property and its value. Don’t expect too much then you should.
Lastly, you need to think about whom you are targeting to rent. Your target should be to make your rental property appeal to a wide range of people.
3.Price your rental property in per square foot
To properly compare your property to other properties, you need to compare the price in per square foot.
However, your property price per square foot doesn’t have to match others, you’ll just have to compare it and make sure it is proportional to your property size.
Say you already have a property of 800 square feet and you get $700 per month. So, the monthly price per square foot of your property is ($700/800) = $0.875.
But if you have a smaller or much larger property, the ratio would be different. Say you have 500 square feet property. If you want to keep the same price per square feet, you’ll end up with ($0.875*500) = $438, which won’t suffice.
Similarly, if you have a 1400 square foot property and if you want to set a rate for $0.875 square per foot then the monthly rent will be ($0.875*1400) = $1225 which is probably more than what you will get for the property, judging by the standards of your 800 square feet property that brings you $700 each month. So now you know how to set a reasonable price for your rental property.
