You’ve done it, made a decision, and taken your home off the market. You thought you wanted to sell it, but you don’t want to let it go. Unfortunately, you can’t live in it right now, either. Since selling isn’t an option, maybe renting is the way to go.
When you decide to rent your property, there are plenty of things to consider: the condition of your home, your neighborhood, how much responsibility you can handle, whether you really want to be a landlord or not, and how much rent you can get.
The one thing that can make or break your decision to become a landlord is the rent. Start too low, and you lose money and attract tenants you don’t want. Too high, and your home sits empty. As you try to determine how much rent to charge, consider these factors.
Mortgage Payment
If you are underwater on your home or you bought during the bubble of 2003-2006, this probably won’t be a good number to use. However, if you’ve owned your home for years, got a great deal with a good interest rate, or recently refinanced to something more reasonable, your current mortgage payment is a good starting point. Ideally, you want to charge enough in rent to cover your monthly mortgage.
Taxes
Don’t use your current tax bill because this will go up once your home becomes a rental property. Talk to your local tax office to find out what kind of increase you can expect. Divide the new totals you’re given by 12 to figure out what amount should be included in the rent. On the bright side, if you’re willing to do a little shopping around for good landlord insurance, your property insurance may go down enough to counterbalance the increase in taxes.
Home Value
In most cases, the price you choose will be between 0.8 and 1.0 percent of the home’s value. If your home is worth $100,000, rent may be around $1,000 a month. If that number can cover your mortgage payment, taxes, insurance, and other fees, it may be just right. But every market is different and rental prices in many areas are on the rise. You may be able to charge more.
Rental Market
The best way to determine what rent to charge is to compare similar rentals in your area. A rental market analysis can be performed by property management professionals at ERA American Real Estate. You’ll know what homes in your area that are similar to yours are charging for rent to figure out if your home will be competitive in your market or if you can raise your asking price.
Other Expenses
Tenants will pay more in rent if other expenses and amenities are included. Consider whether you’ll pay for lawn care, trash/sewer/water, pest control, and home security. These things can keep your property values high and give you peace of mind that certain things will be taken care of. Other fees you’ll need to include, if they apply, in the rental price are HOA fees, COA fees, and property management fees if you work with a management company.
The best way to determine how much rent you can charge for your property is to sit down with a property manager who knows the area, can share information from other rental properties, and explain the current market. Sometimes, when you first rent, you may not cover all your expenses or you’ll only break even. With help, guidance, and a long-term goal for the future, your rental can become a source of income for you. The first step in the process is charging the right amount of rent.
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