This subject has been on my mind lately as I wrap up a renovation in the second apartment of the home I bought last year. I am preparing to put the apartment on the rental market within the next few weeks and have been thinking about the best way to price it.
What not to do is take your actual monthly mortgage plus expenses such as yard maintenance, and charge half of that cost to a future tenant (assuming the space is comparable.) I could be paying a particularly low mortgage due to a large down payment, or a particularly high mortgage based on a low down payment or poor interest rate and neither of these things are relevant in determining a fair rental price. What is relevant is what people are paying now as renters in nearby neighborhoods.
The best source is Craigslist. Search here for comparable rentals in the same part of town and see what people are paying. Of course, it is often difficult to gauge the quality or the amenities of a property listed on Craigslist due to poor photos and brief descriptions, so you should read through as many as you can and even try to set up some appointments to see them in person.
It is helpful to have a list of amenities of your property to compare. Amenities that add value to a property can include:
1. Recent updates including new (I hate to say it, neutral) paint. New bathrooms and kitchens are particularly valuable.
2. First floor location. Where I live, being on the first floor is considered more desirable. This is not the case elsewhere and, in fact, my personal preference is to be on the second floor.
3. Kitchen amenities such as stainless steel appliances, dishwasher or a built in microwave
4. Ample closet space or additional basement or attic storage
5. Off street parking or garage parking
6. Laundry in the apartment or on-site
7. Separate or private entrance
8. Included utilities such as sewer, hot water, and heat
9. Safe neighborhood close to public transportation and parks
10. Hardwood floors
The website, Rentometer allows you to type in a property address and then compares rents to other properties via Google Maps in the same area. What it doesn't provide is the included amenities, so it's not super helpful, but it is fun to use for a minute.
A friend who owns a few properties mentioned that in his experience the higher the price the higher the turn around with tenants. If you can offer a comfortable apartment for a more reasonable price, you may find yourself with longer term tenants, which is what every landlord wants.
Lastly, I would say that it is important to be realistic about setting your price. Ask yourself what would you pay for the same space. And in most cases, think about it as a long term investment, where you will make a profit once the house is paid for or once the market rebounds and you can sell.
Image: Tanya Lacourse