How Much Rent Should I Charge: 2024 Landlord’s Guide

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As a real estate investor, setting rental rates can be a source of confusion and frustration. 

If you get it right, it may help you maximize your occupancy rate and cash flow. If you get it wrong, however, renters may pass on your property for your competitors.

Thankfully, it’s not difficult to take the mystery out of “how much rent should I charge?” There are some simple strategies you can use to determine the best rate for your property.

Why Charging Appropriate Rent Is Important

Making sure your rent prices are in line with the local competition is crucial. If you charge too much for your rental units, you’ll likely have higher vacancy rates. 

You may have a difficult time keeping all of your units rented if people can find similar properties for less money. Many renters are budget conscious and will go with more affordable options when they have choices.

At the same time, if you undercharge the monthly rent, you will lose out on profit. Not only will it affect your rental income, but it could also lead to cash flow issues if you have unexpected expenses.

As a real estate investor, it’s important to optimize your rent prices to make sure you are getting the best of both worlds. If you have the right rental price, it may allow you to have both a high occupancy rate and a high profit margin.

What Is Market Rent?

Market rent refers to the current average rent price for properties in a community. 

When determining how much to charge for rent, it’s important to always compare similar properties. If you are trying to determine the rental price for an apartment complex, for example, you need to compare your rent to other apartment complexes in the area.

Several factors may affect rental prices, including:

• Pet policies
• Square footage
• Special amenities
• The number of bedrooms and bathrooms
• Garage or storage space available to tenants

It’s important to keep in mind that some prospective tenants may place more value on certain amenities, like pet friendliness. If your rental property is pet friendly when others in the area aren’t, for example, that may allow you to charge higher rent prices.

Calculating Market Rent Prices

Determining how much rent to charge doesn’t have to be complicated. Performing a rental market analysis can help you come up with the best price for your market. There are some strategies and tools you can use to make the rental market analysis process easier.

Researching properties online is a great way to start. You could go to Apartments.com, Zillow, or another website that has rental property listings and find nearby units that are comparable to yours. 

Pay attention to the year built, the number of units, amenities, convenience, interior and exterior finishes, and the inclusion or exclusion of a washer and dryer. It’s unlikely that you’ll find an exact match, but it may be close enough to estimate the rent price.

In addition to browsing local rental listings, you can also sign up for a BiggerPockets Pro membership. This will give you access to our investment calculators and our exclusive pro forum. You will also get access to BPInsights, which helps you determine the optimal rent price for your property by analyzing nearby listings.

Another strategy to determine how much rent to charge is to call around to other rental property owners. You could search online rental property listings and call for prices when you find a property that is comparable to yours. This will help to ensure the rental prices you charge are in line with the local market.

Know How Occupancy Rates Affect Rental Price

Do you know the average occupancy rate in your local market? Is it 95%, 85%, or something else? You don’t want it to be higher or lower by too much.

If your occupancy rate is higher than the market average, you may be able to raise your rates. If it’s lower, then your rent might be too high. 

Although other issues may affect your occupancy rate, if it’s not currently in line with what others in your market are charging, it could indicate that you need to adjust your rate.

Check In with Your Property Manager

Property managers can be great sources of local rental price information, but don’t rely on them completely. 

It’s important to conduct your own rental market analysis to make sure the information you have is current and accurate. That said, a property management company may be willing to help with the research if you will be using their services.

A property management company may provide you with a list of comparable rental properties and their rates. They can also advise you on things you can do to increase the rent. 

If your property lacks a dishwasher, for example, adding one might be an easy way to raise the rental price by $50 per month. Before adding amenities, however, it’s important to determine your potential return on investment to make sure the expense is worth it.

Consult With a Real Estate Agent

If you are currently looking for a rental property to invest in, a real estate agent may help you assess the local rental market to determine how much you should charge. 

Real estate agents can be important resources for rental property investors, and it’s important to make full use of their services.

An agent will have access to the multiple listing service (MLS) and can research a rental listing to find out important information about the rental property. The agent can also contact the seller on your behalf to find out the current rental rate and other important information to help you make an informed investment decision.

Don’t Skip the Site Visit

Once you’ve found a few local rental properties that are comparable to yours, consider visiting them to obtain more information. In addition to asking about the rent when visiting a rental property, also ask about unit size, amenities, utilities, and any special features.

Visiting a rental property may reveal more information than what you would obtain from a phone call or online listing. The additional insights you get from a site visit may help you set the right rent price.

How Much Should I Charge for Rent?

After you find out what comparable properties in your community charge for rent, you now need to determine the best rental rate for your properties. The rate you come up with may be slightly different from your competitors, depending on the location, amenities, and other factors.

Here are some ways to go about it.

1. Research rent control laws

One of the most important things you should do before setting your rental rate is to find out if there are any local rent control laws to make sure you are in full compliance. 

Ways you can check the rent control laws in a community include:

• Check local government websites.
• Consult with tenant advocacy groups.
• Check city ordinances and regulations.
• Ask your local housing department or authority.

In addition to finding out about local rent control laws, it’s also important to check the landlord-tenant laws in your rental market. These landlord-tenant laws may have provisions that affect rent increases, maintenance costs, and other things.

2. Determine your minimum rent requirement

When determining your rental rate, you will need to charge enough to cover all of your property expenses and earn a profit. Two important factors to consider when determining your minimum rental rate are the capital expenditure (CapEx) and the reserve.

CapEx refers to large items that need to be periodically replaced. Examples of CapEx include water heaters, HVAC systems, and roofs. 

These are expenses you know you will incur at some point in the future. You may choose to replace these things at regular intervals, but you may also have to replace them early if a unit suddenly stops working.

Reserve refers to savings that you maintain for when your rental property is vacant or for unexpected expenses. 

Let’s say you have an apartment complex with a higher-than-average vacancy because several college students recently graduated and moved out. You may need to dip into your reserve to cover your property taxes, monthly mortgage payments, and other expenses.

When determining what to charge for rent, your minimum rent requirement will be an amount that covers your monthly operating expenses. It will be enough to let you maintain an adequate reserve to cover CapEx and other unexpected expenses.

3. Determine your maximum rent requirement

Making sure the rent you charge isn’t too high is important so that your property will appeal to as many people as possible. If what you charge for rent is above what comparable properties in your market are charging, your occupancy rate and total rental income may not be as high as they could be.

4. Focus on price per square foot

To truly compare apples to apples when determining fair market rent, you have to price your rentals on a per-square-foot basis. 

Let’s say you own an apartment building with one-bedroom units that rent for $525 per month. Based on your research, you believe you can raise the rent by $150 per month without exceeding the local market.

To make sure you are comparing your units to similar units, however, you have to look at the price per square foot. If comparable units are 850 square feet, for example, and your units are 600 square feet, you have to consider the size difference when setting rent. 

To find the right rental price, you may have to price your units less than larger units to account for the size difference.

5. Factor in your amenities

Does your property have any special amenities that are different from comparable units in your market? If so, you may be able to charge more rent. 

Examples of amenities that may help your investment property stand out include:

• Fitness center
• Storage space
• Swimming pool
• Covered parking
• Private balconies
• Pet-friendly units
• Security cameras
• In-unit laundry machines

If you decide to charge a higher rental rate because you have extra amenities, it’s important to make people aware of them. Be sure to include information about them in advertisements and when showing units so that prospective tenants will understand why your units are more expensive than others.

6. Consider the 2% rule

As a rule of thumb, the monthly rent you charge should be approximately 1% to 2% of the property’s current value. 

When calculating rent, however, keep in mind that the current market value may be different from the purchase price. Although there are some situations where properties may decrease in value, properties typically appreciate over time.

To determine property value, find out what similar properties in your community (comps) recently sold for. You may be able to find the purchase price by browsing the MLS or searching online listings. 

You will need at least three comps to estimate the value.

7. Keep seasonality in mind

In some rental markets, rates may be seasonal. This means the demand will be less during certain times of the year and higher during other times.

An example of a seasonal property is an apartment complex that is located near a large university. Because these rentals usually target students, demand will be higher during the summer, when students are looking for housing for the new school year. The demand may decrease after classes have started.

8. Consider periodic rent increases

Your job isn’t finished after you have set the rent for your property. You will need to periodically assess your rates to make sure they are still competitive with other rental properties. 

Rates typically increase over time, and if your competitors start charging higher rent, you also want to raise your rent to maximize cash flow and ensure you earn a solid net operating income.

The Bottom Line on Determining Rent Prices

Determining the best rental rate for your property is both an art and a science. While it’s important to evaluate the local market to check your competitors’ rental prices, you will also have to consider other details like amenities and seasonality.

Although determining rental prices may sound complex, the process is actually very simple. The rate you come up with also doesn’t have to be perfect. You can make adjustments to it as necessary to optimize both the occupancy rate and your income.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.