How to Calculate the Rental Rate for Your Property

If you're ready to relocate but you're not ready to sell your home yet, it might be worth it to consider renting out your house. Renting your home out to a tenant will gain you valuable rental income, which in turn would allow you to pay off your mortgage faster. The rental income you earn could also be set aside for retirement or another big financial goal. However, it can be difficult to know exactly how to calculate the rental rate. In today's blog, we've got the answers to rental questions you may not have considered before.

What to Consider Before Renting Out Your Home

There are many reasons a homeowner may decide renting is the better option for them over selling their old home. It can be difficult to sell a home; sometimes, your listing is simply not visible enough to potential buyers, or perhaps you've set too high of an asking price. You also have to keep your equity in mind. If you haven't built up enough equity in your home, selling might not be a financially viable option. If you choose to rent out your current home, you could potentially use the equity you've built to make a down payment on a different home.

Consider the Risks

It's a huge decision to make to allow someone else to rent your home. To decide, you should ask yourself: are you ready to become a landlord? Even a tenant who checks all of your boxes has the potential to cause severe property damage, or leave you with months of unpaid rent. As a landlord, you also need to be on call to handle any sudden maintenance needs that could arise in a timely manner, which could end up dominating your schedule.

Here are just a few of the financial responsibilities you'll face as a landlord:

1. Upfront costs: You may have to handle unexpected repairs or upgrades to attract renters before listing your property for rent. There are also advertising fees to consider.
2. Ongoing Expenses: You will be responsible for property taxes, homeowner's insurance, and most of the maintenance for the property.
3. Unexpected Vacancies: Be prepared to fully cover your mortgage payments in times of vacancy. Tenants can often need to relocate with little warning.

Consider the benefits

The greatest benefit to many landlords is the rental income that is generated from renting out your home. This additional monthly income could mean that you pay off your mortgage sooner rather than later. Renting out your property could also be an excellent way to bolster your savings if you're waiting for your home's value to go up before selling. Additionally, there are many tax breaks available to landlords to help mitigate the cost of owning and maintaining a rental property.

Questions to Ask Yourself

How does my property's condition affect what rent I can charge?

You can significantly enhance the appeal of your property and thus justify charging a higher rental price if you're investing in consistent maintenance, upgrades, and repairs. When you keep your property properly maintained and make smart upgrades, you will attract high quality tenants who are looking for the comfort and stability of a modern home and are willing to pay for it. Consequently, you will likely have a harder time justifying a high rent if your property is poorly maintained and in need of repairs or new appliances.

How does my property's value affect my rental rate?

Determining the value of your property is the first step in calculating the right rental rate. As a rule of thumb, the rental rate should be between .8%-1.1% of your property's total value.

1. If your property is worth $200,000, you should charge anywhere from $1,600 $2,200 a month for rent when following this recommendation.
2. If your property is worth more than $375,000 you should consider charging less than the recommended .8%-1.1%. Setting a rent price that is too high is likely to make it unaffordable for most renters to live in your property.

If you're unsure of what the current value of your property is, you can hire a professional appraiser, use the Federal Housing Finance Agency's house price index (HPI) calculator, or use an online estimation tool to find the answer. By utilizing trusted online tools and resources, or the help of a property professional, you'll be able compare the value of your property against similar properties in your area, and get a clearer picture on how to calculate rent.

Am I charging enough to meet my own financial obligations?

It's important to make sure you set your rent cost high enough to at least cover your mortgage, and if possible some of your other monthly expenses. If you're looking to make a profit each month,consider the following:

1. Profit Margin: Include a margin of anywhere between zero and six percent of the rent you charge to ensure your investment keeps paying off.
2. Upkeep costs: Remember to factor in maintenance and repair costs, utility fees, insurance, taxes, periods of vacancy, and property management costs.

If you don't do the proper calculations, you could end up further in debt instead of maximizing your profits.

Is the location of my property in a high-demand area?

"Location, location, location is not just a catchy saying. The more desirable the location of your property is, the higher and more competitive the demand will be. Safety is a top priority for many tenants and is a big factor in their decision-making process when choosing where to rent. Here are some examples of what attracts the savvy tenant:

1. Safe Surroundings: Well-lit pathways and common areas, modern security systems, secure package delivery rooms, trustworthy neighbors, and a generally safe neighborhood all will put a tenant's mind and anxiety at ease.
2. Convenience and Close Proximity: Take note of any and all schools, parks, shopping centers, grocery stores, restaurants and any forms of public transportation that are in close proximity to your property.

If your property can offer most of the above amenities and more, chances are you can set a higher rental rate due to its desirability.

What are the vacancy rates in the area, and how quickly are similar properties being rented out?

Take the time to conduct research on similar neighboring properties. Study their vacancy rates and the speed at which these properties are being rented out to gain valuable insights into the health and demand of the local rental market.

A competitive rental market is defined by low vacancy rates and rapid turnovers and is the ideal environment for setting higher rental rates. On the other hand, if the neighborhood is experiencing high vacancy rates, that may signal oversupply or other market challenges. In this case, you'll need to adjust your rental strategy and potentially lower the cost of your rent to reduce vacancy periods.

Does my property include amenities that warrant a higher rental rate?

More often than not, tenants will heavily take into account the quality and quantity of the amenities offered when choosing their next rental home. It could be in your best interests to invest in modern and convenient amenities, especially if you are considering charging above market value for rent. Try to stay ahead of the competition by offering more than just an in-unit washer and dryer, ovens, and dishwashers. In today's rental market, tenants are on the lookout for smart home technology, coworking spaces, and well-maintained outdoor recreation spaces. They're also likely to pay more if your rental can provide a dedicated parking spot, is pet-friendly, or has a pool or fitness center.

What are my competitors charging?

The current national average monthly rent for a two-bedroom apartment in the United States. is $1,790. This number varies based on unit type and size. Make sure to compare similar properties to your own when conducting research into what other landlords in the area are charging for rent. If you're renting out a two-bedroom apartment off the highway, the rental cost of 4 bedroom home nestled between schools will be vastly different. As you look over other price points, keep these factors in mind:

1. Neighborhood
2. Number of bedrooms and bathrooms
3. Most recent remodel or renovation
4. Lot size
5. Amenities
6. The year the property was built

What's the property's rental history?

Look at past trends in occupancy rates, tenant turnover rates, and demand for rentals in your area. Before you determine your rental rate, ask yourself the following questions:

1. Historically, has there consistent demand for your property or similar properties?
2. Have there been any noticeable fluctuations or seasonal patterns in rental rates over time?
3. What other external factors have impacted the rental market in your particular neighborhood?
4. i.e. new shopping centers, expanded roads, additional playgrounds, etc

The data you collect allows you to more clearly understand the local market dynamics and provides you with a benchmark you can use to make a more informed decision when setting your rental rate.

Are there local rent control laws that apply to my property?

Rent control laws are designed to protect tenants against excessive rent hikes and to help regulate the rental market. It's important to familiarize yourself with the rules and regulations specific to your property's location to understand how much you can charge for rent. If you don't comply with these laws, there's a good chance you could run into legal issues. If your property isn't in a jurisdiction with rent control laws, you have much more flexibility when it comes to setting your rent.

How Much Should I Charge for Rent?

When you're determining how to calculate rent, there are a variety of factors you should consider. A good first step is figuring out what the current worth of your home is. The current worth is likely different from what you originally paid for your home. Many landlords turn to websites like Zillow to estimate their home's value in the current market. However, a professional home appraiser can provide a more accurate assessment of the property's worth based on the location of the home, recent local home sale prices and the condition the home is in.

The rent you charge your tenants should be a percentage of your home's market value. Typically, landlords charge between 0.8% and 1.1% of the home's value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month.

If your home is worth $100,000 or less, it's in your best interests to charge closer to 1% of it's value for rent. On the other hand, if your house is more expensive, you may have a better shot of attracting tenants below .5% of the value. Charging rent that's too high will make living in your house unaffordable for most renters.

In addition to your home's worth, you'll need to consider what similar rentals in your area are being rented out for. If your asking price for rent is far higher in comparison to other rentals in your area, you may struggle to find a tenant who's willing to sign a lease agreement. Websites like Trulia or Craigslist can show you how the regional rental rates, and how they compare to the rent you are considering.

If your main reason for renting out your house is to cover your home loan, the rent you charge should be at least equal to the cost of your monthly mortgage bill. Keep in mind that you also need to factor in an estimate of property taxes, maintenance and repair costs, homeowners association fees, and insurance when you're settling on an amount to charge.

One other thing to keep in mind: Some states limit what landlords can charge for rent, security deposits and late fees. Rent control laws exist, for example, in places like New York, Maryland, California and Washington D.C.

How Do I Put My House Up for Rent?

A common method landlords use when looking for tenants to rent to is to find a real estate agent to list their property for rent. However, you will owe your agent commission, which is typically equal to one month's rent or can be another percentage depending on the agent.

If you'd rather handle the task yourself, you can upload your rental listing onto a site like Zillow. Some property owners will even make flyers to post in community areas, or turn to social media to promote their vacant rental. Before you hand over the keys to your house, be sure to conduct thorough tenant screening on your potential tenants. Doing this will make sure you know they can not only afford to keep up with their rent, but will respect the guidelines you set in the lease agreement.

When writing your listing, make sure to include the square footage, number of rooms and bathrooms, and any recent upgrades you've performed. Additionally, emphasize the enticing features that attracted you to the property initially to make it stand out among the competition:

1. Is the property within walking distance of shops and restaurants?
2. Does the home have a private yard?
3. Is it near the neighborhood schools?
4. Are there nearby parks or sports centers?

Price your rental confidently with Credit Link.

Setting the perfect rental rate is a delicate balancing act. Thankfully, there are many tools available, such as rent calculators, market research, and online professional services, that can make it easier. Trusting in a property management company such as CreditLink can offer you easy-to-use tools to help you manage your rental properties efficiently and professionally.

CreditLink Secure offers trusted and comprehensive tenant screening services, an innovative unit management system, a user-friendly maintenance request center, and a suite of features specifically designed to make rent collection as simple as possible for you and your tenants.

Ready to manage your properties like a pro and start generating rental income? Sign up today!