Owning a rental property can be an effective way to secure your financial future. However, as a landlord, you’ll want to find a balance between charging what the market will bear and realizing what you need to make a profit. How can you find such a balance? Here are a few suggestions.
Consider Your Regular Expenses
The first step in determining your desired rental rate is to calculate the costs related to owning the property. If you’re paying a mortgage on the property that you intend to rent out, then you’ll need to factor your mortgage payment into the rent charge.
It will also be necessary to include the interest and other fees paid on the mortgage as well as property taxes and insurance paid on the house. Generally speaking, the tenant will be responsible for utilities such as the cable or electric bills. In many leases, the tenant is also responsible for trash removal, snow removal and basic landscaping costs.
Make Room for a Rainy Day
Ideally, the rent that you charge will be more than the cost of owning and maintaining the property. This will allow you to both make a profit and have some money left over to cover any unexpected expenses that may arise. For instance, the toilet could explode in the middle of the night, or a tree could crash through the roof. Those are problems that need to be taken care of right away, and having an emergency fund makes it easier to do so. From a financial perspective, building in an additional charge for upkeep only makes sense.
Consider the Market
As a rule of thumb, you can charge per month roughly 1 percent of a home’s value. Therefore, if your home is worth $100,000, plan on getting about $1,000 a month from a tenant. Of course, if your home is in a desirable area, it may be possible to charge more than that and attract interest from renters. If the home is in a less desirable area, it may be necessary to charge less than average to make the property attractive on the open market.
Owning a rental property is similar in many ways to running a business. You need to know your numbers and base your rental rate on what the market is willing to pay. There are many resources you can use to determine how much to charge or find tips as to how you can attract tenants to your property.