Finding Your "Goldilocks" Rate Is a Science—and an Art!
- Are you a new North San Diego County area landlord?
- Have you been investing in the area for a while, but have recently acquired a new residential property?
- Has it been a few years since you've taken a look at what you charge your tenants, and you're looking to keep up with changes in the market?
If any of these sound familiar, you're probably wondering how much rent you should charge for your property. Settling on the right number for your rental rates is an essential part of successful real-estate investing; there isn't a one-size-fits-all answer as rent ranges will be different depending on your property type and neighborhood. We'll talk a little bit about what goes into finding the right rent and what you can expect for various property types in the North San Diego area.
What Goes into Setting the Rent?
Setting the right rent for your property isn't difficult in principle, but it can require a significant amount of research.
1. Getting an Accurate Picture of What Your Home Is Worth
This research is a simple step if you just purchased the property, but if you've owned the property for a while, it may have been some time since you've determined your property's market value. You can generally expect to charge around 1% of the market value of your property in monthly rent, although this can vary depending on many factors.
2. Compare Your Investment to the Competition
When you know how much your home is worth, you also need to compare it to others in your area. Develop a good sense of what other landlords are charging in rent for similar properties:
- If you go too high with your asking price, you risk pricing potential tenants out of your home.
- If you go too low, you risk missing out on revenue, and you may struggle to make a profit on your investment.
Remember that the market fluctuates over time and you'll need to regularly review both the value of your home and the rental rates of similar properties to ensure that you're keeping up with changes.
Rental Market Basics in North San Diego
The rental market in the North San Diego County and Carlsbad area is tight: according to a comprehensive housing market analysis of the San Diego/Carlsbad area performed by the U.S. Department of Human Development in 2016, the market had a 3.6% vacancy rate, which is reflected in the above-average rental prices in the area. Apartments represented approximately 51% of available rental housing, single-family homes represented about 26%, and other types of multi-family or attached dwellings represented the remaining 23%.
When looking at the Carlsbad area, specifically, we can find that the median home price is approximately $835,000. The relatively high housing costs mean that renters make up around 34.5% of the population. Houses in the Carlsbad area are relatively new compared to the national and state averages, with the median age of Carlsbad real estate property at 25 years old.
It's a Beautiful Day in the Neighborhood!
Looking at average apartment rent ranges will give us a picture of how neighborhoods in the Carlsbad area in particular compare:
- The vast majority of apartments in Carlsbad (77%) rented for more than $2,000 a month with only 22% priced somewhere between $1,500 and $2,000 a month, and 1% coming in between $1,000 and $1,500 a month.
- As of July 2019, the average apartment size was 979 square feet, which brings in average rent of $2,308 a month for Carlsbad as a whole.
Breaking it down by neighborhood, we find that by far the most expensive neighborhood in Carlsbad is Poinsettia, with an average monthly rent of $2,792. Poinsettia is followed Aviara at $2,524 and Rancho Ponderosa at $2,378, both of which are much closer to the Carlsbad average.
The Barrio, Carlsbad Ranch, Hedionda Point, Kelly Ranch, North Beach, Terramar, Village and Olde neighborhoods are the most affordable areas in Carlsbad, with all eight coming in at an average monthly rent of $2,147.
Your Rental "Type" Matters Too!
While your property's neighborhood can influence the rate, the type of housing that you provide your tenants has an enormous impact as well. Apartments represent the majority of rental housing in the Carlsbad area and will bring in average rents that are a little on the low side, so it can be worth looking at other types of housing to invest in. Single-family homes in Carlsbad can have a steeper barrier to entry in the form of their initial cost but can bring in relatively high rental rates. Smaller homes with triple-digit square footage and one bedroom can bring in as little as $1,600 a month, while multi-bedroom 8000+ square foot estates can run as high as $14,000 a month. Generally speaking, 2-3 bedroom properties in the 1,200 to 1,400 square foot range should see a monthly rent of somewhere between $2,500 and $3,000.
Condominiums and townhomes will generally come in somewhere between apartments and single-family homes in terms of monthly rents, in part because you often find a little less square footage for a comparable number of bedrooms and bathrooms. While this type of property will usually be a touch smaller, you'll often find them to be a more affordable investment. Additionally, the prevalence of homeowner's associations governing these types of property can help to stabilize property values and ensure that your investment will give you a consistent return.
Raintree Property Management Is Your Rental Rate Expert
Setting the perfect rental rate requires more than hard work—it takes an experienced eye—and it's not something you can decide upon then let sit. It can be just as time-consuming to keep up on changing trends that require you to observe the market. A good property management company can help you by bringing knowledge of the local market to work for you—but an expert property manager can help you find that "just right" rental rate and keep your property competitive.
If you find yourself with a vacant property—or expect that you will soon—keep in mind that your rental rate has a role to play in your property listing! There's no better time than an impending vacancy to consider refreshing your investment property's listing. Not sure where to start? Download Raintree Property Management's FREE Property Listing Checklist!
