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How to Determine Your Rental Property Rate

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Marina Shlomov - Thursday, April 2, 2015

This seems to be a pretty hot topic among real estate investors and as an investor and a property manager, I have tried many different methods to determine the rental property rate. How do I determine the rental property rate? Well, there are quite a few techniques that I use here at ALH|Podland Rental Homes Property Management to determine the rental property rate. 


I actually determine our rental property rate range prior to the purchase of the property.  I look at the property, the size, take into consideration our renovations and the area within one mile of our potential property. The rental rate is usually based on the price of the original property, the amount of money spent on renovations and we have a formula that we follow to determine what our rate should be to meet our minimum ROI requirement. We have a cash-on-cash rate of return that we shoot to achieve before taxes and every property has to fit into the range we have set for ourselves. With that being said, it's only a range that we shoot for, if we see great potential in a particular property, we will allow a couple of percentage points off of our determined cash-on-cash ROI. What would you say could make us sway off of our path? If the property is a diamond in the rough, or the positive changes happening in the immediate area. We have had properties where we started out with a rate lower than we usually do (see the "Be Flexible" section), but adjust the rate up by the time the renovations are done. 


Of course, the first thing to do is to learn as much as you can about the area, what are other properties in the area are renting for, what is the difference between your property and others, and I always consider the finishes such as granite counters, hardwood floors, new light fixtures, new wood cabinets...all those finishes make a big difference in your rental rate. Consider the ranges of high to low in your particular area, consider the size of your property and see how it compares to others currently on the market.


We use a program available on the internet called Rentometer (@rentometer on Twitter). It gives you a great comparison of what other properties in the area are renting for based on number of bedrooms and square footage as well as how your rental property rate compares to others. It's not to be used as the only determining factor in your rental price determination, but it's a phenomenal tool for determining what the price should be.


I always set the rental rate on the higher end for my area, of course, based on all the amenities available in the property, however, I am always prepared to go down by $25 to $75 if I see that the property is not receiving the number of leads that we are expecting, or if the traffic is there and there are no applications. I give it a maximum of 14 days. If within this time the property is showing well, I speak with my leasing agents and get their opinion on the subject and see if there is something going on in the area that I am not aware of, such as a property next door that is not being kept up or other factors that might be impacting the area.  The point is, be flexible and prepared to reduce if you follow a similar strategy as I do with my rental rate determinations. Sometimes a $25 reduction in rental rate could mean a shorter time on the market (which also costs you money). We calculate the holding cost of an empty house on a per day basis and always check if that $25 a month extra is worth holding a property for another week that might cost us $100? 

ALH|Podland Rental Homes Property Management owns single family rental homes and manages income properties for other investors. If you are looking for a property management services company in the Atlanta area, contact us. ALH|Podland Rental Homes Property Management will make a difference for you with our watchful eye on the balance of profitability and great customer service for our residents.

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