If you’re reading this, you’re well aware of the wealth-building potential of real-estate investment. Whether you’re building a business on the side or you’re taking it on as your “nine-to-five,” you’re looking to make the most that you can from your investment!
Real estate is unique in that your properties won’t build money on their own in the same way that some other forms of investment can. Earning income in real-estate investing depends on keeping a steady supply of quality, paying tenants occupying your properties. There are many things you can do to keep renters coming and minimize the time that your properties sit empty, but one of the most useful things you can do to make this happen is to set your rents at the right rate. You want to avoid losing out on money by pricing your units too low, and you want to make sure that you aren’t discouraging potential tenants by pricing your units too high.
How can you make sure that you’ve found the right price? Here some things to consider.
Do a Market Analysis
To make sure that you’ve found the right price for your rentals, you’ll need to do what is known as a market analysis. What does this mean?
- Assess the value of your property and compare it against other rentals that resemble yours and have recently sold in your area or are on the market.
- Keep this analysis zeroed into a very local area: the general rule of thumb is to look at properties that are less than three miles from your own.
If you do this process correctly, you can maintain a good sense how much you can realistically make from your property and how it “stacks up” against others. You can use this analysis to keep up with changes to the market in your area. Ignoring this technique means missing the chance to build a strategy and grow your business on robust data.
How Do You Conduct a Market Analysis?
Start by Scoping out Your Market
How many rental properties exist currently, and how long are they sitting on the market? If there are many other rentals or rentals are sitting on the market for a while, you’re in a buyer’s market, so be careful about setting your rents too high. Markets change over time, so while you may have to settle for a while, you can up your rental rates when the market shifts. If there are only a few other rental properties or they’re being snatched up in days or even hours, you can probably charge a fair amount more for your rental rates as your property is in demand. These basic economic laws hold true in the world of real-estate as with anywhere else.
Check out the Types of Homes That Are Getting Tenants in Your Area
Your type of property may be a dime a dozen, or you may have something more unique to offer. Knowing what’s in demand in your area and how your property compares will help you settle on a good rate.
- What is the average rent per square foot in your market?
- How much is the average application fee?
Remember that multi-family homes such as townhomes or condominiums have a different appeal than single-family homes do, and you’ll need to adjust your marketing and pricing accordingly even if you’re dealing with comparable square footage and amenities. Be aware of your market and what your specific property has to offer.
A Few Other Items to Pay Attention To
How long are rentals in your area on the market, and how many rental properties are vacant versus occupied? These metrics can help you get a sense of what is in demand or not and how well they are priced. Don’t take your cues from a property that’s been sitting for weeks with no takers. Do look at properties that have been successfully rented and pay attention to things such as the average price or rent per square foot. The more tools for comparison that you can develop, the better off you’ll be.
Don’t Forget the Little Things
Unfortunately, there are a lot of little details that can nudge the value of your property in either direction. Often these small things are beyond your control.
- Step back a little and look at where your property sits within a neighborhood, where it’s located on a street, and whether your property shares some amenities with other similar properties.
- Two identical houses will sell for different price points when one is located on a busy street and the other is tucked a couple of blocks deeper into a residential neighborhood.
- Don’t get fixated too much on “per square foot” figures in these situations, look at your property with a more holistic eye.
Hire a Property Management Company
Doing this sort of detailed analysis might seem challenging to you: if so, don’t worry! You can call upon a property management company to take on the considerable research workload of finding the right rental rate. Maximizing the money you’re making off your investment depends on finding the right property manager! A property manager that’s been working in the North San Diego or North San Diego area for years will ready with the knowledge of your market, and they’ll be ready to help you maximize your profits.
Now that you've set your rent, you need to find and screen tenants. Download our free tenant screening checklist to navigate the complicated tenant screening process with ease.
