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.
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In my experience, any rental property in the DC area is going to be more expensive the higher up you go because you're likely to get a view of the city skyline. We weren't going to rent a top floor apartment but out of curiosity, we checked out the top floor of every apartment complex and high rise we visited during our home search and the views were often stunning - the prices? Also stunning, but not in the same way! You'd be looking at $1,700 minimum for a ~700 sq. ft. apartment in DC on a middle floor. Top floor would be $2,000+.
Pi--
Same in San Francisco:
For identical apartments in my building, a 3rd floor unit that rents for $2000/month would be worth $3000/month on the 19th floor....
...and its quite common in cities like NY and SF that parking and storage spaces - if available on the property - are an extra charge.
It's really difficult to factor in utilities when a/c and heating costs can fluctuate so much. Also, I work with a lot of landlords helping them with their feng shui to get their spaces rented and also so they can list "good feng shui" as an amenity next to the good closet space!
I have a tenant on the first floor of my capitol hill townhouse. It's a charming one-bedroom place with a fireplace and ceiling beams but not in any way fancy -- the floor slopes, there isn't a/c in the bedroom (it stays cool from the living room), no dishwasher. However it's a great location -- 2 blocks from the metro, about 7 from the Capitol. I consciously underprice it and am rewarded with long-term tenants who do not complain - lest they lose out on a sweet deal -- and who find replacements among their friends when they move on. Every tenant save one I have had has left only because they left DC.
(it's open in October! but i think my tenant's friend is moving in...). Getting a couple hundred less each month is a small price to pay for not having annoying tenants who expect me to change their light bulbs.
I suggest that you go around your neighborhood visiting apartments for rent and see what other landlords are charging for similar apartments. I would even ask existing tenants as some places have high asking rents, then offer discounts or negotiate the rent down.
If you find your unit is better than the competition, price it a little lower. Like your friend said, it's better to charge lower rent and keep a tenant for multiple years than charge higher rent and have lots of turnover. What he may not have mentioned is turnover puts wear and tear on your building, you and your wallet. High rent will also generate lots of complaints as the tenant will feel that since they're paying first class rent, they are entitled to first class services.
A good example is my first apartment. I lived there for 16 years and my rent was below average for the area with biennial rent increases never exceeding the inflation rate. I stayed there until I was bursting at the seams for more space.
Good Luck!
My husband and I had this debate when pricing our house for rental while we are in Europe. He underpriced our home in order to get good and stable renters; I am hoping we did (I haven't seen the inside of my home since, and don't have much faith in our twit of a property manager, but my husband is comfortable with our tenants, and how the house is being taken care of).
We had brand new bathrooms (I never got a chance to try my brand new German bathtub!). Oh, and my Boffi taps. And Wolf 6 burner range.. and soapstone counters... and... Well, you get the picture. What galls me though, is that the rent we get doesn't cover our interest and mortgage payments (we have a short amortization period, and accelerated payments)...
Also, there is a shocking disparity between rental prices back home (and the quality of our house) and those here. 4-bedroom houses here in Switzerland that have tiny barely serviceable kitchens, and bathrooms too small to turn around in rent for between $6800/month and $8400/month. And that's if you can even find one to rent...
"Getting a couple hundred less each month is a small price to pay for not having annoying tenants who expect me to change their light bulbs."
This says it all, Pam. It would cost you at least that much to pay a property manager to do those things for the tenant. Hell, I wouldn't be at some tenant's beck and call for a couple hundred a month.
Lower rent for lower drama? That's win-win.
My mom has gotten me into the HGTV show "Income Property." They give a lot of the same pointers, and actually help the homeowner with the details (like installing a seamless hardwood floor in a 100 year old home!). A lot of good ideas.
A few additions/addenda:
- off. street. parking. Just to reiterate.
- storage units close to the apartment. My unit is in the basement, which would be okay, except for that there's a bank of them next door. Annoying!
- a 24-hour maintenance line. My previous landlord left it to me to deal with a midnight gas leak in my apartment, and actually got belligerent with me when I didn't pass on every bit of information from the fire department and energy guys. My current landlord sends a guy to fix stuff, or gets back to us almost immediately.
- fire doors and unopenable doors. My building is AWESOME... but for the 3 doors I have to open before getting to mine. The outside door has a hinky lock on it, and requires 2 hands to open - one to turn the key, and the other to open the door. It'd be okay if I weren't coming home with laundry, groceries, shopping bags, or my 10-month-old roommate in tow. There's only so much you can set down.
- security lighting. My hallways are pitch black when the power goes out. It's freaky as HELL. A couple little solar-powered kick lights would fix it, but hey, I'm not my landlord.
- animals. My building allows cats and small dogs with no added security deposit. This is completely up to the landlord, but if you have a good tenant, with good pets, it's not a problem. I have a cat who still has her claws (and has been spayed since we moved in), and she only scratches her scratching post, and the mat I put out by her litter box. The apartments are never empty long in a building that allows pets (as long as you get the good ones).
This link might be helpful:
http://www.rentometer.com/
It's also probably a good idea to figure out a rental price before you undertake the renovation.
this is an awesome resource!
We bought a home that happened to already have a MIL apt and we renovated extreme DIY and cheaply, but have been looking to finally rent it. We didn't plan it as income or factor it into purchasing the home so the rent will be gravy. That link was super helpful, i was blown away by how high the rents are in my hood. I'm so excited now.
I'm sure this will have already been posted by now, but you might like to try checking http://www.rentometer.com/
yeah pretty much every individual landlord (not property management corporation) i've met/had says they rather lower the rent to have a good tenant than higher rent and someone horrible who will trash the place, complain all the time, or not pay on time.
I go by what the apartment has on my list of "wants". I wouldn't even look at it if it didn't hit the list of needs. The more of the "wants" it has the more I am willing to pay. I would pay much much less for a first floor apartment over a second since I like the security and quietness of being on the top floor.
Just curious -- for those who do rent out apartments, do you really get a lot of tenants trashing your unit? I'm surprised to read some of the comments mentioning that higher rents often attract tenants who trash apartments!
There was big prob with tenants trashing apts here in Hollywood SoFlo not too long ago. The reasoning behind it is sick; they have to come up with at least 2 mos security/rent to move in. Then they don't pay any more and by the time they get evicted to the point where the sheriff is involved, they've run off and they've "parted out" any decent fixtures. It's sick and it's calculated and in this area you'll find that most of those tenants are on local welfare programs that kick in the move-in money; so free rent AND apartment all on the taxpayer dime. A lot of slumlords don't care because they've got the money and they'll just put in cheap replacement fixtures. So the area rents stay abnormally high, keeping good tenants out. (why pay $650 for a studio when nowadays you can pay that for an empty condo?). Luckily I've had a great landlord for the last 7yrs; as long as the rent is paid he lets us do what we want. He's practical with a young family so understands having to constantly find new tenants is costly so keep us happy.