Most every property owner has the same question in mind:
How much is my rental property worth?
Or, how much will you price my rental for?
There are several factors to determine an answer for these questions, however, the clear thing to remember is the price of your rental is always dictated by the market. It’s based on how much people in your area are renting homes for that are similar to yours.
Gathering Reliable Comps Reports
The key to knowing how to set the best rental price for your property is running what is called a comps report. A comps report takes into account homes that are close to your area and similar in size, condition, and age. This data helps provide a consistent price for your property. To get the comps report started, there are important pieces of information you need, including:
- The square footage of the home
- The neighborhood the home is in
- The number of bedrooms and bathrooms in the home
This is a starting point to give a good range of what your property will rent for. With this information, we can get an estimate within a couple hundred dollars. There are some factors in which we would need to see the property in person to get the exact price to list your rental. Seeing your property would allow us to determine the condition and see the upgrades in the home. Obviously, a cleaner home with upgraded features like appliances, cabinets, and fixtures with good paint colors will price higher than others in the neighborhood.
What to Analyze in Comps Reports
Certain things in a comps reports can change the outcome of pricing your home.
One of the things to consider is that finished basements, especially in split foyer homes, will not add to your home’s rental value. Finished basement square footage and finished basement bedrooms and bathrooms do not count much if they are below the split level. Properties with the same number of beds and baths above-level will find more value than those below, regardless of whether they are finished or not.
Working with Property Managers to Price your Property
When you’re choosing a property management company or an agent, you need to really look at the comps report they provide. Many times, these comps reports are not realistic and are used just to get a listing. Some agents and property management companies use the Metropolitan Regional Information System, or MRIS, to generate their reports, and they pick the comparables that are based up on the houses in your market. They do this to make it look like they can get you more money for your rental by picking comps that contain newer homes or homes in areas outside of yours.
They might make it look like their own expertise on the comps is going to get you a top dollar amount for your rental, but it’s not true. Realtors who do this are very rarely penalized because they end up dropping the list price of your home knowing that there is a 90% chance you are going to stay with them and the house is going to rent regardless of what they initially told you or what it actually sells for. We see it all the time where houses built in 2018 will be compared to houses built in 1990, because they are the same square footage.
Be sure to carefully observe the comps report given to you and assess it and make sure you understand it completely.
Third Party Comps Reports
The comps reports we use are third party reports so we don’t do anything other than input the stats, and it will give us our price range. We cannot manipulate or make them look better. It doesn’t benefit you if we mislead you on rental rates. A lot of times, if the rental rate is not right, the property will sit on the market longer and any amount of money you would gain from a higher rental listing, you would lose in vacancy costs. Every day your property is on the market is a day you are losing money.
Some agents will list a property high with the strategy that they can just drop the price if it’s not getting any hits at that price. Again, this just adds to more days on the market. You will have to lower the price to rent it, and it will sit on the market longer, giving potential tenants the idea that something is wrong with the property.
The key is to price realistically and get the property off the market as quickly as possible. You will get a tenant faster, you will get income faster, and you will get a better renter if there are people competing over the property. And, the way to get people competing over the property is to make sure it is in good condition and priced correctly immediately upon being placed on the market.
If you have any further questions or concerns about how to price your rental property, please feel free to contact us at Real Property Management Gold.