So you have a rental, but aren’t sure what exactly the fair market price is to rent it out? This is a very common issue for people in the rental property management business. Market prices are constantly changing. In order to fill your units, you need to be on top of how quickly rents are rising or dropping and set rental rates that are reflective of the current market. Currently, in our community, the rate to charge for Chico rentals is rising and it’s hard for most owners to keep up with how fast they’re increasing.
Many times property owners are operating on fairly low margins so every increase of cash flow due to higher rent is important. The game you have to play is basically rent up all your units with the highest rents the market will allow. The key is knowing what the market values really are. Here are some tips to get an accurate reading on where your property should be as far as rental rates go.
Keep it well-maintained
First off to get the best rent, you need to make sure your property is well-maintained. Key factors include making sure the lawn is green and mowed, the unit has a fresh coat of paint, and the place is clean and updated. Don’t expect to get top dollar for your unit if it looks like it could possibly be in a scene from The Walking Dead.
Know your market
In many online articles you’ll read that the rule of thumb for renting out a unit is to take the total value of the home and multiply it by 1% to 1.1%. So if you have a home worth $300,000, then you can expect a rent of $3,000 a month. While I respect the advice of the people who preach using this ratio, in my city (and possibly yours) this ratio does not work. It just doesn’t.
In the current market for Chico rentals, we’ve had homes come off the market for $500,000 and we’re trying to rent them out for $2,300, and even then the calls are just trickling in. This ratio is .46% of the home value, less than half the ratio popularly accepted in many online forums and other blogs. What we’ve found to be true, is that the lower value of the unit the higher the rent to value ratio is. For instance, we have multi-family units that are valued at only $70,000 a door and they rent for $1,000 a month producing a ratio of 1.4%, nearly triple the ratio of the half million-dollar home.
Use your resources
As you can see, finding your rental amount is more complicated than just taking 1% of the value of the home and charging that as rent. The real test of knowing how much your property will rent for is testing it against real-life rentals in your area.
At Hignell Property Management, we do periodic rental market surveys, as well as subscribe to software services that tell us, in real time, what rentals are currently being rented for in our area. This is the best factor to look at when determining how much your property will rent for.
So here’s what you do. Call on rentals in your area that are advertised online. Ask them if they would be willing to take a market survey. If they say yes, proceed to ask questions about how many vacancies they have, how much the units are renting for, and so on. Go online and look at pictures of the property and compare how yours stacks up against theirs. If they are at 100% capacity and are renting similar units at $1,400 a month, then you can expect to get $1,400 a month. If they are at 80% capacity and are getting only $1,000 a month, then you should probably expect to get $1,000 or a little less. Your best factor to determine rent is the real market that you live in.
Hire a Rental Property Management Company
The last way to make sure your rents are where they need to be is to hire a property manager. I don’t just say that because I’m a property manager (and if you’re this kind of person you may not need a property manager) but I say that because a good property manager will walk through your unit and know within a couple of minutes what you can get for your property.
I have seen properties undervalued by as much as $600 a month! Literally, one owner was charging the same amount for years, a new owner bought the property and was able to charge a new tenet $600 more per month for the same exact unit without doing any upgrades. That’s an extreme case, but a good property manager isn’t going to leave money on the table, and in some cases they can make up for their fees just by pricing the property right and marketing it to more people.
If you have Chico or Redding rentals or live in the surrounding area, and would like to talk about rental rates and rental property management, please don’t hesitate to contact us. The right rental price will help you maximize the potential of your investment.