How do you price your rental?

Question

I have just begun my journey in rentals and am looking for rental listing advise, I appreciate your time!

I recently bought a distressed SF in an up and coming area. I have completed a complete remodel and I am now on the second “R” Rent. I have my property listed thru Zillow and their partner sites. I listed a coming soon with 3 low quality (phone) photos 3 weeks ago. I kept that up for two weeks before pulling it down for 3 days and getting professional photos. I now have it re listed with professional photos for a week. I received a ton of interest with 4-5 applications 10 or so contacts and 3 showings. (None came thru to a signed lease)

Reason for my thoughts of starting at $2,200:

-Everything is brand new and follow current trends.

-great split floor plan with two masters (done with rehab)

-House is walking distance to a very upcoming downtown area, and great employment/industry

-two neighboring houses are rented at 1,800-1,900 but are in much worse condition.

My question is how long do you hold a price before decreasing? Do I drop it now just before the month roll or keep holding strong? The property will cash flow nicely even at 1,800 but I want to optimize returns.

Erik W. · Answer

@Nick Dini, hi and welcome to BP!

This may sound weird, but you could be underpriced.  If your comps are only a couple hundred $ less but in much worse shape, people may think yours can't be very good even though the pics look nice.  They might not even be seeing it depending on how they set up their Search filters.

Let's say the real market rate for a unit as nice as yours is a minimum of $2,500, and most renters know that.  They will set their price filter at $2,500 and up.  You never show up on their radar.

But you DO show up on the radar of people who are used to renting cheaper, dumpier properties.  The only problem is you are on the HIGH end of their Search criteria, so even though your place is nicer you're still too expensive for their budget.

Pull better comps and see if you need to bump your price point up.  Best case you get more money and get rented.  Worst case you get nothing for 1-2 weeks and drop it again.

Pricing is a critical component of land lording because you don't want your listing to go stale (45+ days).  Make some changes and see what happens!

Dexter Belling · Answer

Congratulations on that deal, Nick!

I went and found your property on Zillow. I live only a couple miles away. Nice renovation! I didn't see a garage in the photos and I think that could be a big downside for the typical renter looking at similar properties. People in Phoenix have lots of toys!

You could try to target people who don't own as much stuff. There seems to be a lot of transient professions in our area (travel, nursing, tech industry, etc.) You might be able to get that higher rent if you furnish the house and market to those professionals who need just 3-6 month leases. Since you have two master bedrooms you might even be able to rent the rooms separately???

I haven't even made my first deal yet, so this is an unexperienced opinion. I want to find properties that would work well for fully furnished short term leases. I think there is a big need for that in the Gilbert area. Your property looks like a good candidate for my future strategy so I thought I'd share the idea.

It would be cool to hear what you end up getting once it rents.

Good Luck!

Chris B. · Answer

Asking rent is too high.  I have a rental in Gilbert also so know the neighborhood a bit.  Its a beautiful job you did, but $2200 for a 1300 sq ft home in that area is too much.  People see that Zillow "Zestimate" stating it should be $1405.  I feel $1405 is too cheap given the great remodel and demand in the area, but it is an older home in a town with a lot of new 2000+ sq ft homes not far away.  I'd guess it should be around $1900. Of the 41 nearest rentals on Zillow, its the 4th from smallest.  I also think its a little nicer inside than there is demand for in the area so that's not pulling the price up as much as we would like.  With Covid in full swing and the 116 degree weather, the great downtown location doesn't have the appeal it could have.

Ethan Jacobsen · Answer

@Nick Dini

I forgot to mention what we use to figure out rental prices. We use Appfolio as a property management software and there's a feature in that which gives us some nearby comps. We have also used Rentometer which will pull some information from similar listings. The Zestimate on Zillow is sometimes very accurate and sometimes way off, so it's not very reliable on its own. Message me if you want a way to get some comps and I can help you out.

We sometimes list on Craigslist when we're desperate or to combat the scammers. But Facebook can actually get a LOT of interest going. There are likely groups nearby dedicated to "ISO (in search of) housing". Whenever I post our unit in one of those groups, we get about 10,000% higher engagement on those posts. They reach thousands of people sometimes. I'd say posting it on local FB group pages could help a lot. Just make sure they're good groups with action. The FB Marketplace could help too.

Ethan Jacobsen · Answer

What we normally do is start at a desired price and then determine whether we should lower it or keep it based on interest and engagement. It looks like you've gotten quite a bit of interest, but no signed lease. I wonder if there's anything else that might be holding people back from signing. If you can afford the vacancy cost, I would say maybe keep it high for another weekend and then if you still don't have a signed lease by next Wednesday, drop it down $100. You could also reach out to some of your previous applicants and see if they would be interested at $100 cheaper. We actually have a calculator that we built with a spreadsheet to calculate whether it's more cost effective to lower the price to get it rented quicker or to keep the higher price and wait for the perfect tenant. Most times it's almost a coin toss. Of course, if you want to get it rented sooner, you might as well just drop $100 now and get it rented sooner. You can always do a rent increase in a year to make up for it. By the way, I looked on your profile and saw the pictures - You did a great job with the remodel!

Rob B. · Answer

Hi Nick, great questions here. There are quite a few things that you'll want to take into consideration. Not only the property type (SFH/Duplex/Triplex/etc) but also direct, comparable properties in your area. There are definitely some tools out there that can help you to better identify what the rent prices are in your hyper-local rent market. You can try services like Rent Range or Rentometer to better pinpoint pricing and from there factor in monthly expenses (you don't want to set it so low that you're operating at a loss, but set it high and you'll price perspective candidates right out of your candidate pool). Some platforms have made it so that you can access these types of tools from directly within the same account that you manage the other parts of your rental business. Definitely worth looking into! @Nick D.

Chris B. · Answer

I think the home is in a real up and coming location as the town is revitalizing downtown and continuing to make good progress.  I see a lot of appreciation potential with this really close to downtown proximity and the rent will continue to grow over the years as the town transforms not counting for any general market up and down conditions which we have no control over. It’s a balancing act.  You can ask top dollar and maybe take 2 or 3 months to rent it and lose 2 months of rent as its empty or you can come in cheap and rent it in a day.  However there is a sweet spot somewhere in-between.   I haven't used the paid Rentometer site, but have tried it unpaid and haven't found any value in the service.  Last time I tried, it wouldn't even give me an estimate for my own home without paying so I moved on.  Maybe I'm missing something.  I use Zillow and to a lesser degree MLS for my pricing comps.  It’s easy to see what others are charging in real time right now.  Also take into consideration the extra unlisted fees you or others charge… $20 “air filter” fee, signing fees, maintenance fees, Management fees… Some have rentals don’t go this route and others have a drastically higher rental than advertised.  Compare final prices. The more your management company charges if you have one, the less you can charge.  I perform a few searches and compare how my proposed rent will compare to my competition.  I start off with about a 1 mile radius, but also consider out to maybe 3 miles.  Here is the criteria I use:

1. Size:  Search for homes of a similar size +/- 250 sq ft.  How does my SFH compare in price?

2. Rooms: Search for homes with similar room count.  For example 3 bed / 2 bath or 3+ bedroom and 2+ bath.  Consider similar garage parking availability also.  How does my SFH compare in price?   Comparing my SFH to an apartment isn’t always straight forward as tenants seem to be willing to pay a top dollar for a lot less with no hassle and extra amenities in an apartment or condo situation.  Good to be aware of these rates, but generally stick with comparing a SFH to SFHs.

3. Condition and "fanciness":  With the above searches, how nice is my home compared to the competition in the above searches.

If my home is mid-way with fanciness, I would expect my proposed rent to be just a bit under the mean of the homes of a similar size and of a similar room count.

The following additional factors are my speculation because I don’t have any rentals with top end interiors to compare with.

If there are factors outside the above criteria, try to assess how much value they are actually worth to the target tenants.  For example, your remodel job is beautiful and should definitely up the rent somewhat, but given Gilbert isn’t Scottsdale, or Tempe near Mill Ave yet, it may have a restricted affect attracting the type of millennials with wads of disposable income. These tenants do exist in the area as the new stores downtown are frequented by these crowds, but how likely are these young families to opt for a beautiful, but small home instead of a large but nice home?  I don’t know but it’s a factor to consider.  Also, How much extra rent will you bring in if you maintain the front yard?  In my experience, it doesn’t seem to make a difference in someone deciding to rent or not so I don’t include it.  If your expenses for this add up, consider offloading it to the tenant.  I have a provision where I can help find a service which the tenant will pay for if they like and in 12 years have never had a tenant opt for this.

Best luck on this amazing remodel!

Oh, one more thing tenants may be considering is the utility bills.  Its a brick house which frequently means a poor R values and high AC bills.  Many tenants do consider this and you are competing with some homes that may have 2 or 3 feet of blown in insulation in the ceiling.  If you do have affordable utility bills, make sure to point this out to the tenants and let them know how much money they will be saving during the summer on AC.

Alex Keathley · Answer

@Nick D.

Congratulations on the new rental Nick! That’s awesome! BRRRR strategy fine at work here with infinite COC Return! Great work!

I have had major success with Facebook Marketplace and buy/sell/trade pages. I post it though my business page to keep my name and personal life separate from my rentals. Free marketing is the best marketing in my opinion, but throwing a sponsored ad on there for your property may help even more. Hope this helps. Hang in there! You will get a great tenant in there soon!

- Alex K

Suhan Junaid · Answer

@Nick Dini

So I typically compare to market. What’s the typical apartment unit: how much does it rent for, what kind of appliances, sqft, laundry or no, and most importantly - location, etc

Then if my unit offers more, we charge more. However, I think for rentals getting more in rent is usually harder even if you have nicer features.

My experience is been that the real premium for rent is location, then you can get incremental premium for appliances, sqft, etc.

But if you’re in a less desired location, then adding stainless steel appliances won’t give you that much of a boost

Theresa Harris · Answer

@Nick Dini  Look up comparable listings and go from there.  Rentometer will give you options as well.