You’ve decided you want to be a landlord. Great! Now how do you decide what rent to charge?
Determine market value
The easiest way to determine what rent to charge is to observe the market. Look at sites like zillow. Also compare your house to other comparable houses on sites like Facebook, or calling landlords when you see for rent signs.
You can charge a premium rent
There are instances where you can actually charge a premium for rent.
- Charge higher rent for being a better landlord.
- Post the rent higher than market value before it is move in ready.
- Pet rent. It’s a good thing.
Let’s look at each of these closer.
Charge higher rent for being a better landlord.
Tenants are ok paying higher rent for a better landlord. The tenant is looking at different houses that are all similar in some way. Rental houses are a commodity. But you can be the difference. You can be what makes a tenant want to pay more for a house. Be a better landlord, and you can charge higher rent.
Post the rent at higher than market value before it is move in ready
You can post the house before it’s ready to rent. Not only can you post the house before it’s ready to rent, you can also post it with higher than market rent. This is an idea that many landlords disagreed with me over. Many landlords aren’t good landlords. They don’t think of things smart. Making money in real estate doesnt require smarts. You can make a lot of mistakes on a long enough time line and still come out ahead in real estate.
Why does this work? For several reasons. Tenants generally do not spend months looking for a house. They spend weeks. It generally would take me 30-45 days to get the house ready to rent. It could have been quicker, but remember my objective was to minimize stress, not squeeze every moment of my life out of rental houses. So you actually get a couple rounds of people looking at the house by showing it before it’s ready. You get twice as many prospects.
By having the rent higher during this period you get a feel for interest. If you are getting a lot of interest then the higher price is possible. If you are not getting the leads you want you adjust it down to market price when the house is ready. There are other benefits to showing the house before it’s move in ready, but I’ll address those in another blog post.
Pet rent is more lucrative than a higher deposit
Early on I realized even if you tell someone they couldn’t have a dog in their house, they would. Give up on that battle. Dogs have become an extension of people’s families. Let them have that.
This is an opportunity to make money. At first “doggie deposit” seems like a great idea. My houses rented at the $1,000 price point. So a doggie deposit of $500 is reasonable. That’s a number that tenants would say yes too. Instead of charging doggie deposit, consider doggie rent.
It’s reasonable to charge $50-100 more a month in doggie rent. It’s a number that feels small to tenants relative to how they would feel to get rid of their dog or find a different house.
So this becomes a math problem. If the tenant signs a two year lease (I never do shorter than 2 year leases), then 24 months x $50 = $1200.
Even if you were to charge $1000 for a doggie deposit, you make more charging doggie rent. Further with a deposit it is assumed that you give it back, or fight over giving it back. Instead you don’t need to give back doggie rent. Add in that the $50 is on the low end and that tenants tend to stay longer than their leases and the doggie rent adds up.
Sometimes you will want to discount
This one is tricky. But sometimes it makes more sense to offer a discount on rent. My goal with tenants is consistency and certainty. If a tenant is really low risk, then consider a discount if you think they will walk away.
I had a rental house that was renting around $800 a month. It was in an area that I would tend to get scrappy tenants. It was across the street from a business. Once when it was vacant I had a prospect who worked at that business. He was making $200k+ a year on a W2, his credit was great (700+), and he was extremely professional. The prospect was an electrical engineer that traveled for work. He also had a house 35 minutes away.
So why was this prospect looking to rent? He wanted to rent my house so he had a place for lunch and to park his cars, motorcycles, toys. (the house had a 2 large detached garages). He basically used the garages for mini storage and the house for a place to get away from work.
He was extremely low risk. So when he was trying to decide whether or not he wanted the place, I offered to lower rent. He rented the house for several years and was an amazing tenant. He had enough income that he paid to fix everything instead of calling me. The house was left in beautiful shape. Great tenant. I miss him.
Also, sometimes you have a great tenant that is currently living in your house and they are thinking about moving. Giving them a discount may make more sense for you then having them move, and leaving you with the headaches and expense of a vacancy.
Don’t rush to offer a discount, but sometimes they make sense. Discounting isn’t something to fear. Just be selective when you to it.
Determining what rent to charge is an art. Be creative. Don’t limit yourself to charging market rent. You can actually charge a premium. Other times you might actually make more money by offering a discount.