The answer to this often discussed question, depends on a number of variables, but the most important question you should ask yourself is "what are the current rental rates in my area for rental property with the same amenities as mine?"
My advice: DON'T BE PENNY WISE AND POUND FOOLISH.
In other words, don't go so hard after the pennies, that you miss the opportunity and gain on the larger issue.
There is nothing productive about having an empty rental. Remember, you are in this business to earn money and you do not make a profit if your property is empty. You have to be able to fill your rentals quickly and efficiently. When deciding on a rental rate do not get over zealous. The urgency will be to over price the rental. Over pricing your rental or pricing it at the very top of the market will add to the risk of that property remaining empty for longer. That can be a problem!
Some would argue that you get a better tenant by pricing your monthly rental rate at or above the market value, but I would argue that the $50 or $100 difference in your monthly rental price will not come close to guaranteeing you have a good tenant that will pay on time and take good care of your property. The thought of believing that a higher monthly rental rate will help you weed out bad tenants, makes my me cringe as an experienced landlord. Your focus when determining your monthly rental rates should be based on the market, and not an empty assumption that you may find a better tenant if you charge more.
Some of my most reliable and conscientious tenants have been tenants that paid at or below the market value for their rent. Don't fall into the thought that the tenant that pays $600 per month is less responsible, less intelligent, or any more troublesome than the tenant that pays $700 per month. Determining your tenants ability to pay and maintain your property is a process in and of itself and should not be confused with, or tied to, whether or not you decide to charge an extra $50 or $100 per month.
Now, if we were discussing the difference between paying $500 per month and $1,500 per month, then there are statistics that would allow us to draw some conclusions that there is a correlation between rent amount and quality of tenant. But in this case, we are talking a few hundred dollars at the most, and therefore the correlation is non existent. I hope this makes sense.
When determining your monthly rental rate, you must take the steps to find out what the similiar properties on the market are renting for in the area of your rental. Take a good look at houses that share the same or similar amenities. You can easily spend a Saturday, during the mid-morning and early afternoon actually canvasing (driving) the neighborhood and contacting homes for rent in the area, or you can do this from the confines of your own home by logging on to a site like Zillow. Go through Craigslist, Facebook marketplace, and other online sources that advertise rental properties. You can call the landlords, or send them a message or email.
When you make these calls, you will be speaking to other landlords. Use that opportunity to pick their brains. Other landlords will assume you are a potential renter, but 3 questions into their talk with you, they will soon know you are a fellow landlord. Tell them you are a landlord and again, continue to pick their brain. You will learn a ton about the market and about your neighborhood.
Many will gladly share information. Yes you are competing with other landlords in your area, but you can also take whatever opportunity you have to learn from them as well. After calling 5 or 6 of these, you will have a good sampling to determine the average rental price of rentals that match your unit.
My advice: PRICE YOUR RENTAL UNIT AT OR BELOW THE AVERAGE MARKET PRICE
Here is a quick example to illustrate this very important point:
If you rent your property for $800 per month instead of $900 per month, you lose $1,200 ($100 x 12 months) per year. However, if your property stays empty for an additional 2 months because you overpriced it and advertised it at the very top of the market in the neighborhood, then you lost $1,800 ($900 x 2 months vacant). So in this quick example you could be losing $1,800 in an effort to gain $1,200. Not a smart landlord move.
That's being penny wise and pound foolish. That few extra dollars that you could be trying to squeeze a potential tenant for could cause you to lose substantially more than you would have lost by simply lowering your monthly rental rate. This technique has always been one that has worked out well for me, so I suggest it to fellow landlords. Think long term and look at the big picture. Five years of overpricing your empty rental could result in thousands of dollars lost.
For more information, or help with a question, please feel free to comment, or contact me directly by leaving a message: