Supply and Demand
A major underlying factor determines rent – supply and demand. Generally, if the supply is low, the demand is high and conversely, if demand is low, the supply will be high.
For example, if there is one other property of similar size and amenities in the neighborhood for rent, this substantiates a competitive price. However, if the same neighborhood has twelve other properties for rent, it puts a different light on the rental value, even if your property has a few more amenities. Asking top dollar and competing against numerous properties does not make economic sense, particularly if the property remains on the market for several months.
Always consider comparable properties in the current rental market. This usually means similar size, amenities, and neighborhood desirability. Specific items to consider are square footage, lot size, bedroom and bathroom count, appliances, heating and air, parking, etc. Every area contains neighborhoods that are more “desirable” and usually based on low crime, better schools, community activity, etc.
What Not to Use When Setting Rent
Do not use appraisal values. These figures are used for meeting loan requirements and appraisers use rental values for properties already rented. The pitfall here is that the property may have been under rental market value at the time or at a higher rent that not obtainable today.
Do not base the rent on purchase price or justifying the investment. Perhaps at the time of purchase, rents or expectations were higher. Rental markets can swing just like the stock market, up and down.
Remove your emotions when renting a property. For example, if the property was a personal residence, personal memories can distort the true picture of the rental value. Think of the property as an investment in today’s rental market.
Common Sense Must Prevail
It doesn’t pay to sit on an empty property. Run the numbers, long vacancies create more financial damage than adjusting price and renting the property with the least amount of time possible. Work with the rental market and achieve success.