Owning rental property in Charlotte, NC can be extremely profitable.
It can be an excellent way to qualify for tax deductions, supplement your mortgage payments, and more importantly, help you earn passive income.
However, owning a rental property doesn’t equate to guaranteed success. In fact, buying a property is only half the equation. The other half involves several other factors. Key among these factors is knowing how to determine the ideal rental price.
The right rental price will attract the right renter. On the other hand, charging the wrong rent can have devastating effects on your investment business. The key is finding the Goldilocks level of “just right”.
So, how do you determine the right rental price for your Charlotte, North Carolina property? Well, continue reading this post to find out how.
1. Use the 1% Rule.
The 1% rule is a great yet simple way to determine a fair rent amount. According to the rule, your monthly rental income should be equal to or more than 1% of the purchase price.
Let’s suppose you bought your rental property at $200,000. According to the rule, the rent should be at least $2,000 per month for the investment to qualify as worthwhile. ($200,000 x 1% = $2,000). Also, don’t forget to include any repair costs in the purchasing price.
Essentially, you want your property to pay for itself in the least amount of time possible. If a property follows the one percent rule, it should take 100 months to recover its cost.
2. Conduct a comparative market analysis
In Detroit, the average rent for an apartment is $1028/month. Rents, however, vary greatly throughout the country.
While using the 1% rule is great, a more concrete way of determining what to charge for rent is a comparative market analysis. This is the study of similar properties in the same geographical area. It will help you get a rough idea of what you should charge for rent.
You can begin by asking the local property managers or the local real estate agents for comparable units. You could simply walk to their offices or do a quick online search. For better results, aim for three or more comparable units. If you have a property manager, you’re in luck. The majority possess a software system that can scan and compare a multitude of properties in no time.
Alternatively, go to real estate sites like Realtor.com and Zillow. These can help you find both the past and existing rentals in the area.
3. Understand the factors that impact rental value.
There are various factors that impact rental value. Such factors include:
- The location: When it comes to real estate, location is highly valued by renters. Buying in the right location can mean better market growth, higher property appreciation and greater demand for rental units.
If your property is located near great amenities, public services, shopping centers and entertainment you can usually charge a higher monthly rate (compared to similar structured units). Tenants will be willing to pay more if the property is located in a convenient and popular location.
On the other hand, buying in the wrong location can set you back in terms of rents.
- The market: When the economy is bad, the rental demand tends to increase. This is because people tend to not want to buy homes during this time. With increased demand, this would mean charging more for rent.
Conversely, you’d need to lower your rental rate when the demand for rentals reduces.
- The desirability of your unit: Does your property feature modern design elements? If so, then you may be able to garner higher rents. Remember, quality tenants want quality living.
The same goes if your property has high-end appliances and finishes. Other things that would help achieve a higher rent rate include storage space, hardwood floors, and good wireless internet connectivity.
- Amenities: This is a huge one. Having desirable features, conveniences and comforts can help you ask for a higher rent.
Good examples include convenient laundry facilities, dishwashers, garbage disposal, pools and tennis courts, and home office space.
Raising the Rent for Occupied Units
One thing that landlords and tenants disagree on regarding rentals in the increase of rent. Although it’s a nuisance, sometimes it’s necessary for the property owner. The rental market ultimately decides the rent price for your unit, but certain factors affect the need for a property owner to increase rent.
Moreover, when you consider raising the rent you must pay attention to your tenants’ needs as well. You may risk losing good tenants for increasing the rent rate.
So, what items should you consider when deciding on raising the rent? First and foremost, consider your expenses. These may include expenses like:
- Property maintenance costs
- Cost-of-living expenses
- Property management fees
- Insurance premiums
- HOA dues
- Higher utility dues
- Property taxes
If any of these expenses increase throughout the year, then raising the rent may be necessary to maintain the bottom line of your property investment.
Secondly, you need to look at comparable properties in the neighborhood. If you are charging a significantly lower rent price, then consider raising it to meet the fair market value.
Another thing to consider is your existing renters. Do you have residents in your unit that you truly value? If so, decide whether raising the rent is worth it. Remember, finding qualified tenants isn’t as easy as you might think.
You also want to check North Carolina rental laws. As a landlord in Charlotte, NC, you must follow a specific legal procedure when increasing a tenant’s rent. You cannot just raise it as you please.
If you are not well-versed with these laws, please consider hiring the services of a property manager or qualified attorney.
If you find that you must increase the rent, it is important that you communicate your intentions with your tenant(s). Relay the information as concisely as possible. Let them understand why it’s needed.
How to Handle Backlash
Once you have made your intentions known, get ready to address potential negative feedback from your tenants.
“You are raising the rent too much.”
Explain to your tenant what the current market rate is. It helps if you conduct a comparative market analysis prior to raising the rent. With that data, you’ll have enough to tackle any concerns your renters may have.
If the new rent compares similarly to the prevailing rental rate in your neighborhood, then your tenants will be less likely to complain.
“Why are you raising the rent?”
In this case, take the time to explain the reason(s) why the rent is going up. It’s always better to go in with specific examples.
These may include insurance premiums, property taxes, maintenance costs, and property management fees (as mentioned before).
You could also explain any planned improvements you have in the future. This may allow them to realize they are getting a good deal out of the rent rise.
Tenants have many choices when it comes to rental properties. Therefore, you have to make yours stand out by setting a competitive rental rate. This will help you attract the right renters for your Charlotte, NC rental property.