Summary
As an independent landlord, it can be difficult to determine how to set a good rental rate, especially when you’re starting out. Thankfully, there are many practical things you can do to help figure out how much to charge for rent. These include: looking at similar properties in your area, checking out market trends, considering amenities and property quality, and paying attention to the season. Reviewing available data can help you set a fair market rental rate that attracts quality tenants while bolstering your business.
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Like walking a tightrope, setting a good rental rate is a balancing act. Setting the rate too high could lead to costly vacancies. A low rate might be more attractive to tenants, but may also overextend your finances and send you tumbling down into bankruptcy and foreclosure.
As an independent landlord, the key to success is setting a rental rate that is not only profitable for your property, but also is competitively priced to attract good tenants.
However, determining the proper rental price can be challenging—especially for newer landlords. While property management does carry some inherent risks, there are many things you can do to help protect your investment. Often, these preventative measures include gathering as much background information about potential tenants as possible.
For example, running background checks through a reputable service like SmartMove® can help you make more confident leasing decisions. Similarly, using publicly available market data may help you set a rental rate that’s good for you, your tenants, and your bottom line.
Below you’ll learn more about how to finding the potential rental price sweet spot for your unit, as well as tips for getting a good rent estimate, and the importance of including your amenities before setting your rental rate.
This article covers the following topics:
Why is it important to charge appropriate rent
It’s essential to charge the right rent price for several reasons:
1. It may help you place the right tenants and get paid on time.
According to a 2023 SmartMove Survey, ”Payment problems” is one of the top landlord concerns when renting out property. This is no surprise when the cost of an eviction resulting from nonpayment can potentially run up to $10,000 in court costs and legal fees, including the time and expense to fill an unexpected vacancy. Can your property business take that kind of hit? Many can’t.
- If your rates are too high: you may have trouble placing tenants at all and risk losing out on monthly income.
- If your rates are too low: you might not attract your ideal tenant and lose potential profits.
Your job as a landlord is to find the fair market rent sweet spot: not too high, but not too low.
Consider the average income of those who live in the location of your property. Your rental rate should target prospective tenants with similar incomes so you can fill your space quickly and not have to worry about getting paid on time.
Pro-tip:
Income Insights, a tenant screening tool exclusive to SmartMove, helps you confirm that your prospective tenant’s income actually matches what they claimed on the rental application.
2. It helps you cover your mortgage and other carrying costs.
Your property is an investment. You conduct tenant screening to help protect it and ensure you get your rent money every month. However, if your tenant does pay as they should and you’re unable to cover all the expenses for your property from your rental income, then you haven’t set the right rent price.
Once you have the right price set, make sure to do financial screening and employment verification, to help reduce the risk of potential non-payment.
Your financial screening should include things like:
- Tenant credit check: this gives you an overall financial picture of your potential tenant and how they’ve handled past responsibilities
- Income Insights: this helps you confirm that the income they listed on the rental applications aligns with their actual salary. If it doesn’t, you may have to get more financial proof.
Resident Score®: exclusive to SmartMove, this proprietary score was designed for the rental industry. It helps predict future evictions 15% better than traditional credit scores alone.
3. It helps you maximize your potential rental profit.
Setting the right rental price could mean maximizing profits. According to management company Henderson Properties, many investment properties have a profit margin of about 10%.
Setting the correct level of rent can help keep that number up. With rent that is lower than it should be, you could be unintentionally smothering your profit.
Pro-tip:
When it comes to choosing tenants, financial vetting goes far beyond just glancing at a potential tenant’s paystub. Learn how to verify your applicant’s finances to help catch potential red flags.
How Much Should I Charge for Rent
It’s easy to see that setting the right rental rate is important, but figuring out what to charge tenants can be a bit more complex. There are many factors to consider before you narrow in on the right rental rate for your property.
1. Know Your Competition
According to Apartment List’s national rent index, after several years of rising costs, rent prices are actually declining in many U.S. locations. This is good, “overall” information to have. After all, if you continue to jack up the rent and others in your area are stabilizing, you might not find many interested tenants.
It’s a good reminder to take a look at what other landlords in your area are charging. According to Yardi Matrix, the national average rent in the United State was approximately $1,733 in May 2024, which was just 1% higher than the previous year.
However, that increase varies greatly in different cities. Here is the year-over-year breakdown in increases from a few key cities tracked by the Yardi Matrix:
- New York City: +4.8%
- Columbus: +3.6%
- Kansas City: +3.4%
- Philadelphia: +2.4%
- Indianapolis: +1.9%
Additionally, rental properties are likely to be at a premium in places like San Francisco and L.A., whereas smaller towns with less economic growth and job opportunities may have fewer prospective tenants, therefore rent prices may be less competitive.
On the other hand, the trend of increased remote work means people may have more freedom to move to less expensive markets, which can impact local real estate costs.
Bottom Line: Look Up Market Comps
According to SmartAsset, you should look at market comps in your immediate area to help determine what to charge for rent. This helps you:
- Learn what other landlords are charging for similar properties as your starting point, and
- Adjust the price of your rental based on what you uncover.
Another checkpoint is to look at fair market value estimations, which are updated every year by the United States Department of Housing and Urban Development (HUD).
When viewing what other landlords are charging in your area, be sure to note if rental units have similar desirable features with your property such as size, neighborhood or location, and property condition.
You can also utilize online tools like Rentometer to help get quick snapshots of properties in your rental’s neighborhood for a more in-depth analysis.
Pro-tip:
Keep an eye out for any rental properties that have shifted price in the last couple of weeks—you may find that you have to do the same in order to remain relevant in the rental market game. Learn other ways to maximize your rental profit.
2. The 2% rule is just a guideline
According to lending site Rocket Mortgage, the 2% rule is as follows:
- The 2% rule: the monthly rent should be at least 1-2% of the property’s purchase price.
But, keep in mind that this is just a quick guide to estimate your potential rent. It’s not a substitute for researching local comparable units and examining rents charged. Additionally, if property prices rise faster than rent prices, this type of calculation could prove faulty.
3. Seasonality can affect rental price
Seasonality can greatly affect rent prices. According to Apartment List, the demand for rental property is highest during the spring and summer and tends to plateau during the winter seasons.
There are a multitude of reasons people don’t want to uproot in the colder months. These may include things like:
- They don’t want to move in a snowstorm
- They don’t want to disrupt their children’s school year
- They don’t want to move during their own school year (if they study)
- They don’t want to move during their work’s busy season
According to Apartment List, 25% of people who start their search in July will move in the next 30 days, whereas only 22% of people who start looking for apartments in January will take more than 90 days to move.
If there are fewer prospective tenants looking to move during the winter season, then your rental property may stay vacant longer. This may be extremely expensive. Some landlords opt to offer a lower rent price during the winter season to help avoid costly vacancies.
The big takeaway is this: listing your property during the winter season could impede your ability to charge your desired rental rate because of lower tenant demand.
Tips on How to Get a Good Rent Estimate
Before you determine a rental price, do your due diligence and consider these additional tips:
- Tap into your network. Take advantage of BiggerPockets and other online forums to communicate with other landlords in your area.
- Look at rental property sites. Carefully comb sites such as Craigslist, Trulia, and popular sites in your region to get an idea of the comps in the area. Also, look for rental ad copy ideas so you can write an effective ad that catches the attention of high-quality applicants.
- Consider the amount of interest in your property. If people aren’t applying or expressing interest in your rental, then this could be a sign that your rent is mispriced or is too high considering factors like property location, parking options, amenities offered. You may want to consider a valuable upgrade.
Consider Your Property’s Amenities
While doing comparison research is important, it’s crucial to look at what the property has to offer. For example, if you find a comparable property that’s similar in size to yours but it lacks an important feature or amenity, such as an in-unit washer and dryer, then you may be able to justify a higher price.
Here are some of the top amenities tenants look for in a rental property:
- Parking: Available parking is a huge bonus to many tenants. Make sure to point out details such as if there is assigned parking, a spacious garage, or plentiful street parking.
- Security: Security is always a perk, as it can help to give your tenant peace of mind about their overall safety. Be sure to mention information about any smart home technology or other security systems/personnel your rental may offer.
- Walkability: There’s a reason why “location, location, location” is such a popular statement in the real estate world. Proximity to local goods and services can be a major differentiator for your unit. Having a desirable location can increase your unit’s attractiveness to tenants.
- Outdoor entertainment areas: An indoor or outdoor pool, patio or balcony, and recreation areas such as a tennis court or dog park are other great features that may help to draw in prospective tenants.
If your unit has great amenities or is close to desirable schools, restaurants, grocery, retail stores, or public transportation you could probably consider them as solid selling points that help justify higher rental rates.
Pro-tip:
Having a dog park is a good amenity, but should you allow them in the first place Learn more about the pros and cons of allowing pets in your property.
Help Set Yourself Up for Potential Success with the Right Rental Rates and SmartMove Tenant Screening
With the overwhelming variety of responsibilities and tasks, being an independent landlord can sometimes feel like juggling on a high wire. If you can’t keep all the balls in the air, the result may be catastrophic. Help reduce the risk of disaster with fast, online tenant screening through SmartMove.
Setting the right rental rate is useless if your tenants can’t—or won’t—pay it. See if your rental applicant has a history of potentially troublesome patterns with an eviction check. Then, a tenant credit report may help you learn more about your applicant’s financial track record.
Income Insights helps ensure their self-reported income on the rental applicant matches what they claim on their rental application. Meanwhile, Resident Score® helps predict future evictions 15% better than traditional credit scores alone.
Once you’ve found a financial sweet spot, don’t let potentially destructive tenants devour your earnings. Check for relevant past crimes with a criminal record check. This report compares your applicant’s information to millions of federal and state records searching for a potential match. Knowing what your potential tenant’s past includes may help you make better leasing decisions.
In the circus of independent property management, SmartMove® can help you make more confident leasing decisions.
Know your applicant.
Additional Disclosure:
The information posted to this blog was accurate at the time it was initially published. We do not continue to guarantee the accuracy or completeness of the information provided. The information contained in the TransUnion Rental Screening Services, Inc. blog is provided for educational purposes only and does not constitute legal or financial advice. You should consult your own attorney or financial adviser regarding your particular situation. For complete details of any product mentioned, visit www.transunion.com. This site is governed by the TransUnion Rental Screening Privacy Policy Privacy Notice located at TransUnion Rental Screening Solutions, Inc. Privacy Notice | TransUnion.
