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27 Oct 2011

How Much Rent to Charge

Determining how much rent to charge does seem easy, I know. Just survey a few comparables, look at what a neighbor charges and what the other landlord in the similar property gets...that easy. NO, in my 10 years as a small real estate investor, I find determining rental levels quite complex. Even when the property has been occupied by a tenant before, one cannot just assume that the last rental paid by the previous tenant, is the one to be asked from the next. The landlord may have to reduce the rent he/she charges because of the changes in the economic conditions, changes in the property and neighborhood, etc. Similarly, he/she can increase because of those changes or because when those changes occurred, he/she couldn't change the rent high enough for the tenant. (You may also be interested in my article on things to consider when buying a rental property)

Every time you have a vacancy, you go back to research on the "going" rental rates. Firstly, if you haven't already read our articles on preparing the property for rent and one on how to market a property, you may like them. Pointers to How Much Rent to Charge: 

Property Appearance from the Outside
  1. How the garden, paint, windows (and window treatments), design, driveways, etc, are, play a role in how much of the tenant's hard earned cash he is willing to part with. 
  2. Clutter in your driveway, porches or garden will cost you a lot in rental you charge. The house has to be de-cluttered to be shown to potential clients.
  3. The whole character of the building, even in multifamily dwellings will affect the rental rate.You will need to bring out the curb appeal of the property.
  4. Preparations for the show-house involve some work on the whole "look and feel" of the place. That's what prospective tenants see first, and we know how powerful the first impress ions are. 
Property Appearance from the Inside
  1. The layout of the rental unit may be outdated. One may think of changing the internal plan, if the rental increase justifies the cost. In some cases, a few dollars difference in rental doesn't justify the thousands of dollars to be spent on breaking walls.
  2. The piping and fixtures also have an effect on how much rent a landlord can charge. A house with outdated lamps is expected to bring in lower income than the one with modern chandeliers. A landlord has to keep updating the fixtures with modern and more economic ones. Older technology costs a lot more to use in electric bills, etc.
  3. Finishes are probably the most influential in the tenant's decision to take the place or "pass". Cracked tiles, missing wooden floor pieces, broken blinds, stiff door knobs, and hanging closet doors are not going to get you the best tenant, let alone your landlord neighbor's rent.
  4. The best views will earn you slightly more than your neighbor facing the cemetery. Pair that with a balcony with appropriate seating, and you score a great tenant and a few hundreds of dollars.
  5. De-clutter again. Nothing is as costly as clutter. Unlike buyers, prospective tenants wont look at the potential. Why should they look beyond clutter, when they have a few options?
More for Multifamily Dwellings
Some of the factors that affect multifamily units are not in the landlord's control. This is more so when the landlord doesn't own the whole building. The landlord should try to be active in the homeowner association (HOA) to have an influence in how the place is run and managed. The following are a few factors that determine "how much rent to charge":
  1. Cleanliness and appearance of lobbies and corridors
  2. Lifts, doors, stairs, floors
  3. storerooms, gardens, garages
  4. Employees and their attitude
  5. Noise, etc
As a landlord, you should keep up with the trends in the rental rates in the area where you have invested. I do that all the time. Even when I have appointed a property manager. As an investor, its in my best interest to keep with trends and changes that affect my investment. Now, let me go email the photos of the duplex that I have available from 1 October. It has to get a tenant for me to keep on building that emergency fund. The place was remodeled just over a year ago in preparation for the tenant who is leaving end of September. All I need is a reliable handyman to fix the tiny issues like window rails. And then the screening of prospective tenants begins.

Wishing you a great week ahead. Let me know how you also determine "How Much Rent to Charge" in your own properties.

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