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Brooklyn Property Management Blog of ProRealty

How to Determine Rent in your Area?

Brooklyn Property Management Blog of ProRealty

Being a property owner, to evaluate the resale value of a house is a difficult task to complete. Similarly, determining the correct rent of a property is equally challenging when we consider the separate set of factors. You’re in a constant confusion of ensuring that the price is low enough to attract occupants and high enough to manage your expenses. Now, the question is whether there’s anything balancing that satisfies both tenants and the landlord?

Setting the suitable rent for your investment property involves much more than simply trying to make a profit. As far as tenants are concerned, they have so many choices when it comes to rental properties, so you have to make yours, an impressive one. It means you need to set the right rental price that attracts high-quality tenants and reflects the positive attributes of your property. After a little research, math and market know-how, you can calculate the appropriate rental price for your investment property.

Fair market rent:

Fair market rent (FMR) is the monthly rent a particular property type receives. FMRs are established by the U.S. Department of Housing and Urban Development (HUD). Fair market rents are calculated according to the property’s size, type, and location. For example in a rural area, a two-bedroom fair market rent could be $800, while it could be $1,300 in a more expensive metropolitan district.

Current market rent?

Current market rent is the rental rate a property gets in the open market, which is normally determined by neighborhood or zip code. The current market rent usually differs from the FMR because it is affected by local demand and supply.

For example, a rental home of two-bedrooms might have an FMR of $1,100. But the current market rents in that particular area support a rental rate of $1,300. This is not uncommon.

Key Factors for Calculating Rental Rate:

There are a few ways to find information about rent prices in your area, for the properties similar to yours.

1.  Worth of property:

You can use your overall property worth in order to get a base rent value. This is an especially useful method for those who are renting out their former residence so you should be familiar with the true value of your home.

The rent of a property is usually between 0.8% and 1.1% of the value of the home. If your home is valued at $300,000, then, the rent could be between $2,400 and $3,300 per month.

This method will definitely be affected by the actual price range of your property. If the value of the property is under $100,000, most markets can sustain you charging around 1% of the home’s value for rent.

However, if your property’s value is $375,000 or more, you would want to stick to the lower side of the range to attract better tenants. Too much charges could scare away good tenants, and you will want to focus on renting to only the best tenants for you.

2. Local rent of an area:

The common thing that most landlords do when trying to decide what to charge for rent is to check out how much other landlords in that area are charging. There is one common mistake that is made while using this technique. When you compare rent between properties in your area with some other, you have to ensure that you are comparing similar properties. If you want to rent out a studio apartment, you will not be able to compare the rental cost to a single-family home’s price point.

If you charge too much more than local properties with same characteristics as your property, it will be hard for you to find a high-quality tenant for your property. Similarly, make sure that you aren’t shorting yourself on profits by charging too little. Analyze the local market. It can help you in finding the right balance of value for tenants and profits for your business.

3. Importance of demand:

The rental value of your property can change drastically due to demand. The demand can affect the rental cost of your property both in positive and negative ways. Here are some of the most common effects of demand that you would see:

  • Bad economy: demand for rentals goes up as very few people can afford to buy
  • Bad economy: smaller and cheaper apartments will go more quickly
  • Before the school year:  more demand of larger-sized properties, as families try to move before the school year changes

To conclude, with the less demand, the lower you must make your rent to bring tenants in. When demand is high for the type of unit, you are offering, you can set the rent at a higher price.

4. Your Expenses Vs Profit:

There are a few factors that will decide how much money you will make from a property:

  • Mortgage payments
  • Cost of maintenance
  • HOA fees
  • Taxes
  • Vacancy periods cost
  • Cost of property management

In addition to these expenses, you definitely want to make some profit each month too. Once you’ve calculated the potential rent according to local property values, your own property value, and the current demand of property, calculate how much money will be needed to go towards expenses every month. If you are left with no profits, you need to consider a slight increase in the rent to ensure you turn an adequate profit each month.

5. Rent-Boosting Factors:

  • Total number of bedrooms
  • Utilities, like electricity, gas, water, or Internet
  • Allowance of pets on the property
  • Includes extras like additional storage, garage, parking, or backyard
  • Amenities like pools, laundry, recreation room

A relatively new factor due to which a rental property’s rates fluctuate is its walkability score.  Walkability is a term that determines a property’s proximity to restaurants, stores, transportation, schools, etc.  


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