Whats the right amount of rent?

Question

Hello BP Nation, I recently purchased a 3B/1.5B  townhouse for $176K in East Baltimore County, MD. My property manager and I set the rent at $1800. The median rent for the zipcode is $1500. There are very few rentals in the vicinity. A similar townhouse listing down the block is asking for $1500, and is newly renovated inside (hardwood floors and 2 full bathrooms)... mine looks straight out the the mid 80's. I'm concerned about not signing my first tenant this month, but also wanted to stick to the rent I evaluated for. Should I adjust my rental price or pay the mortgage myself until I get a tenant that obeys the 1% rule?

Patricia Steiner · Answer

Tenants don't obey the 1% rule...they don't control what the landlord paid for the property and rent is set by the market. If a comparable property in better condition is renting for $1500, your rental price would be something less. Every day your property is not rented, is a day that you've left cash on the side of the road. Better to rent it for something than leave it vacant. Offer a shorter term lease if you feel rental rates will be going up or if you will be renovating it to a higher price point.

Again, the market sets the rent price. Forget the 1% rule - it's a guideline not the law - and get it rented...

Again, the market sets the rent price.  Forget the 1% rule - it's a guideline not the law - and get it rented...

Stephen Kehoe · Answer

zillow rental manager will give the layperson a good idea. It automatically pulls info. from tax records https://www.zillow.com/rental-manager/price-my-rental/?itc=ltr_zw_ltr_zrm-home_tpnv_price-my-rental

Alan C. · Answer

Sorry to rub this in, but as others have said, rents don't necessarily follow the 1% rule. In my estimation, most properties not located in C minus or D areas will not meet the 1% rule. As in most of business, there's an inverse relationship between headaches and ROI. The higher the ROI, the more problems you can expect.

A better rule would be "make your money when you buy." You should run all your numbers including rental comps before you make an offer or purchase a property. Make sure that all the numbers add up to a positive cash flow, even allowing for Murphy's Law.

And don't take an agents' word for the numbers. Remember that most agents only want to sell a property to make a commission and might make the case that whatever they show you is a good deal. Really good agents will be like a business partner, looking out for your best interest, but those type of agents are extremely rare.

Ryan Howell · Answer

The property manager's goal is typically to get you the most money.  In my experience, they tend to try and push for the highest rent, but that isn't always what nets you the most money.  At first I dealt with longer vacancies and higher turnover which can really eat away cash flow.  After talking to more experienced investors, I learned to keep the rents a little below market.  They fill faster, you get more applications and once they're comfortable they don't have nearly as much incentive to move.

Corby Goade · Answer

Forget the 1% rule- these rules are just guidelines and once you have a quality tenant paying rent, you'll never thing about the 1% rule on this property again. One month of vacancy would eat up all of the potential profit if you did actually get a higher paying tenant. If you trust your PM, let them run the show, get you a tenant and you can focus on your next deal.

Whitney Robert Caldwell · Answer

@Alex Keathley The house down the street is undervaluing the rent a little. The seller of my property had a previous tenant paying $1650. Since its right by the water I wanted to ask for a little more. The number of inquiries is a little underwhelming this week. Hopefully I haven't lost any potential good offers.

Alex Keathley · Answer

@Whitney Robert Caldwell

Congratulations on your first rental!! That’s awesome!

IMO I would get a qualified tenant in there sooner rather than later. Lowering rent to draw in more interest is upsetting, but sometimes it’s what you got to do. Maybe try it at 1500-1600 and see what you can get. It’s possible that place down the street is just undervalued because they are wanting to fill very quickly. Hope this helps!! 👍🏻👍🏻

Dennis Cosgrave · Answer

If a similar townhouse down the street is renting for $1500 and it is in much better condition than yours, would you pay $300 per month more? I don't think so. As such you cannot expect anyone else to pay it either. Before you set your asking rent, you need to analyse the market rates of rent for comparable properties in your area. Set your rent accordingly, assuming you want rent it quickly.

Nicholas L. · Answer

@Whitney Robert Caldwell get it rented ASAP.  Do the math and you'll see it's not worth holding out for the higher amount.  11 months @ $1800 per month is the same as 12 @ $1650 - vacancy kills cash flow.

Whats the right amount of rent?

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