If you want to move but aren’t interested in selling your home, renting it out could be a good option. Getting a tenant could speed up the process of paying down your mortgage. Then, you may save for something important, like your retirement, with the money you’ve earned. We’ve compiled some considerations to help you choose a fair rent price.
Tips for Homeowners Looking to Rent
There are several scenarios where renting out your home rather than selling it might be the best option. Selling a home might be challenging if the asking price is too high or prospective buyers need help finding your listing. If you still need to build up enough home equity, selling may not be an option. You can use the money you’ve built up in equity as a down payment for a new house.
But renting out your property, even for a short time, is a major decision. First off, ask yourself if you’re prepared to be a landlord. No matter how responsible they may seem at first, tenants can cause significant damage to your property and even lower its market worth. You should also be available at tenants’ convenience in case of plumbing emergencies such as clogged toilets or burst pipes.
It could be financially dangerous to convert your primary residence into an investment property. You may have to invest some cash into repairs before the house is rentable again. Landlords can take advantage of several tax incentives but should still budget for certain costs, like those associated with property upkeep, repairs, and insurance.
To set the stage for our discussion of what constitutes a fair rental rate, it’s worth noting why it’s crucial to get the asking price just right:
1. It Aids In Finding Reliable Renters And Ensuring Timely Payments
Eighty-four percent of landlords cited payment issues as their primary worry in a poll conducted by TransUnion. It’s little wonder, considering the time and money needed to fill an unexpected vacancy, as well as the court charges and legal fees, eviction due to nonpayment can cost upwards of $10,000.
2. It’s Useful For Covering Rent, Utilities, And Other Overhead Charges
Your rental income should cover your property’s operating costs; if it doesn’t, you must set a competitive enough rate.
3. It’s A Great Way To Increase Your Rental Income
The Balance reports that landlords can keep zero to six percent of their monthly rental income by setting the rent price right.
How Much Should I Charge for Rent?
While it’s obvious that charging a fair rent is crucial, determining that figure can be tricky.
Finding the optimal rental price for your property requires careful consideration of several factors.
1. Be Aware Of Your Competitors
The annual rent increase reported by Apartment List’s national rent index may be seen in nearly all of the country’s main areas. This is useful “overall” data, as it shows that rents are rising across a wide swath of the United States. However, before deciding on a rental fee, you should research what other local landlords charge. Yardi Matrix reports that in June of 2018, the median rent in the United States was $1,405, up significantly from the median of $602 in 2000.
The standard deviation of this average might be quite large amongst jurisdictions. For instance, rental properties will likely be in high demand in cities like San Francisco and Los Angeles. Yet, rent costs may be less competitive in smaller communities with less economic growth and job prospects.
Rent prices should be set after careful consideration of local market conditions. Find out what other landlords charge for comparable properties, and use it as a benchmark.
Then, modify your rent to reflect the new information.
2. 2% Rule Is Just A Guideline
Some property owners may be familiar with the “2% rule,” which states that rent should equal between 1% and 2% of the property’s worth. But remember that this is simply a rough estimate of your possible rent based on some heuristics. It’s not a replacement for checking out rent prices and other similar listings in the area. Further, property values have increased more rapidly than rents in recent years, suggesting that this computation may need to be revised.
3. The Role Of Seasonality
Rents are very susceptible to seasonal fluctuations. Demand for rental properties peaks in the spring and summer and remains constant throughout the winter. This occurs for various reasons, the most prominent of which is that tenants find it more troublesome to relocate during the colder months.
The last thing most people want to do is move during snowfall or in the middle of the school year for their kids. Apartment List found that although 25% of renters who begin their search in July move within 30 days, 22% more renters who start their search in January take more than 90 days.