Setting the right price for your Lubbock, TX rental is the key to fending off the dreaded enemy of landlords – vacancy. As a savvy investor, you can do your homework and arrive at the ideal price that lures renters. You will want to cover your expenses and bring in a positive cash flow, yet offer a competitive price. Setting a “Goldilocks” rental price that is neither too high nor too low is easy if you do your research and enlist the help of a professional.
Factors Affecting Rental Prices
Location plays a critical role in determining the amount of rent you can expect from your investment property. Rental properties near upscale amenities attract renters willing to pay higher rents. Access to transportation, shopping, restaurants, entertainment and medical facilities makes a big difference.
Beyond location, renters look at the overall size of the unit, the number of bedrooms and baths, and whether the property is a multifamily dwelling or a single-family home. They may also consider laundry facilities, appliances, parking and the length of the lease. Considering the condition of the rental unit is also important in generating an accurate rental price. A newer or more updated unit will generally command a higher rent than an older unit. In fact, a “tired” 3-bedroom unit may command less rent than a new 2-bedroom unit in the same location.
Potential renters may have special considerations when looking for a rental property. Some want a pet-friendly property or an open concept layout, while others look for a fenced-in yard or walkability to services.
Methods for Determining the Rental Price
There are several methods you can use to arrive at an accurate rent amount for your investment unit. You might set the price by considering the square footage, or you can look at the real property value to get a general idea of an appropriate rental price. Many experienced landlords ask a professional real estate agent or appraiser to prepare a Comparative Market Analysis that shows the rent of similar properties in the area.
Square Footage
To find out how much rent you can command using the square footage method, look at units similar to yours in your area. Then calculate how much these units are getting per square foot.
The formula for the rate per square foot is as follows:
Monthly Rent / Square Feet = Monthly Rent per Square Foot
Then take the result of your calculation, the monthly rent per square foot of a particular unit, and multiply it by the number of square feet in your rental unit to arrive at a ballpark rental price. You can also use an average of several units in your calculation, which may give you a more accurate picture.
Real Property Value
Another method of determining rental price is to calculate the amount based on the real market value of your property. To use this method, calculate 1.1 percent of the market value of your rental unit. Multiply the value of your home by .011 to get the result.
The formula is as follows:
Value of your Home x .011 = Amount of Monthly Rent
Note that this method does not factor in features like design, amenities and the neighborhood.
Comparative Market Analysis
For a more accurate estimation of the rent to charge for your investment unit, contact a professional real estate agent or appraiser for a Comparative Market Analysis (CMA). Be sure to look at properties that match your unit for factors like the location, the number of bedrooms and baths, the square footage, amenities and the age of the property. The CMA will compare properties similar to yours in the neighborhood and show how much rent they command. A CMA will also show vacancy rates, how long a property was on the market before renting and market trends.
Beware of Red Flags
After you set a price for your rental property, keep your eye out for red flags that indicate you may have missed the mark in your pricing. For example, if you put your unit on the market and you do not receive any inquiries after the third day, your price may be too high. Other indications that your rent is too high are that people call but do not come by to view the property, or renters come but do not fill out a rental application. On the other hand, your rental price may be too low if you receive many inquiries on the first day, and potential renters appear overly eager to give you a deposit.
Check out “What to Do When your Tenant Stops Paying Rent” for more Landlord/Property Owner Education.
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