Blog Post

How to Determine the Ideal Rental Price

dawsonpropertymgt • Apr 11, 2019

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 and rental properties. The key is finding the Goldilocks level of “just right”.

 

 

So, as a landlord, 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 through rent prices.

 

 

2. Conduct a comparative market analysis

 

In Detroit, the average rent price 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  and landlords 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 or are partenering with a property management company, you’re in luck. The majority possess a software system that can scan and compare a multitude of properties in no time and help you dtermine what to charge for rent.

 

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 investment property is located in a convenient and popular location, increasing your property value.

 

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 rental prices. 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 price. 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.

Share this post

By Derek Dawson 14 Mar, 2024
The process of moving out can be a source of stress for both landlords and tenants. Landlords face challenges such as conducting property inspections, returning security deposits, and advertising rentals to find new tenants. Meanwhile, tenants are busy coordinating their move and packing, often leaving things behind unintentionally. One common issue for landlords after a tenant moves out is the continued receipt of mail addressed to the former tenant. This can include junk mail or packages, and dealing with it can be a source of stress. Thankfully, Dawson Property Management has provided the following guide to help you handle mail from previous tenants. Legal Considerations Regarding Mail from Previous Tenants It is imperative to familiarize yourself with various local and state laws, especially if you are a first-time landlord. This includes handling mail directed to former tenants. Opening or disposing of someone else’s mail without explicit consent is a serious transgression carrying legal ramifications. The privacy of mail is safeguarded by federal law. Violating this law, such as intentionally opening, destroying, or stealing mail not belonging to the recipient, can result in significant fines or up to five years of imprisonment. Offenders may also face civil lawsuits seeking damages.
What If Unpaid Rent Is More Than the Security Deposit
By Pam Nguyen 15 Feb, 2024
If your tenant's security deposit insufficient to cover unpaid rent? Here’s what the landlord should do!
Dawson Property Management will look into the challenges and benefits of investing out-of-state.
By 1946638 10 Jan, 2024
Landlords often invest in out-of-state properties for a variety of reasons. Investing in a state with a thriving economy and growing job market can lead to increased property appreciation, delivering long-term financial gains. Additionally, it can help you diversify your portfolio and reduce risk exposure. By spreading your investments across different locations, you can safeguard your assets against market fluctuations or economic downturns. Moreover, the favorable tax in certain states can be a driving force, as lower property taxes can significantly contribute to the overall profitability of an investment. So, the prospect of investing in out-of-state property presents both opportunities and challenges. In this article, Dawson Property Management will provide a clear understanding of the benefits and the challenges of investing out-of-state. This will help you approach this decision with careful consideration and a clear understanding of the potential benefits and pitfalls. Benefits of Investing in Property Outside Your Home State Diversification One of the primary advantages of investing in out-of-state property is diversification. Spreading your investments across different geographic locations can help mitigate risks associated with regional economic downturns or localized market fluctuations. Higher Returns In some cases, out-of-state markets may offer better returns on investment compared to local markets. Emerging markets with lower property prices may provide you with the potential for increased profitability.
Show More
Share by: