Property owners dream of the easy life as a landlord — renting out their properties, raking in the dough, no longer part of the rat race. The term “House Hacking” has become a trendy term that describes the act of using your house to generate income. It seems lucrative but renting your property is much more complicated. Management of the property, for instance, is essential to ensure that tenants won’t destroy the place, get behind on rent payments or decrease area property values (and thereby anger neighbours) by trashing the yard. Ongoing maintenance — guaranteeing the comfort and safety of your tenants — is another concern. But often the most difficult and illusive task of a property manager is to set the proper rental rate.
Setting the right rent is a delicate issue. So many factors go into the mix that it can be a confusing task, often prompting property owners to resort to pulling a number out of the air. But this can lead to disaster.
The basics: without taking an extensive course in economics, there are two concerns — too low or too high. Simple enough, but how do you figure the right rent before you ever advertise the property? If the rent is too high, qualified applicants will be scared away–and even if it is rented, chances are the length of residency will be short. If the rent is set too low, decreased cash flow and deferred maintenance will result, as well as an increased probability of deadbeat or even destructive tenants.
Don’t feel comfortable setting the rent? There are property management companies in abundance out there ready to take the burden off your shoulders, but it’ll cost you. Fees can range from 50 to 72 percent of one month’s rent, not to mention additional expenses and fees. There are many advantages to using management services — they place and maintain the advertising for you; show the property for you and give a sales pitch; review applications, screen applicants and conduct background checks; and prepare lease documents. Not a bad investment, but with the right information you can save the money and do it yourself.
There’s no scientific method to setting rent — it just takes some research, market savvy, and legwork. The best place to start is by looking at area rental listings to see what the going rate is for comparable properties. In recent years in the Peterborough area, we have seen a shortage of rental units which has increased rents substantially. Student housing also impacts availability and rental cycles with both Fleming College and Trent University located in Peterborough, student rentals play a significant role in availability and pricing. Some neighbourhoods are more conducive for student renters and some property owners prefer to rent only to students while others prefer to not rent to them at all. This will be a personal choice on what you are comfortable with. Rental properties are traditionally divided by geographic location. It’s a good idea to look at similar properties (of comparable square footage, amenities, and age) in your area and see what the range of prices is. Is your property in a trendy part of town? Close to the highway? Near good schools? Within walking distance of shopping? All these factors can influence the rental price range. Doing scan of the local area is important and takes time – it pays to consistently track the local market. Trends such as new industry coming to the area and new housing developments nearby should be consistently noted and tracked.
Supply and demand are factors to consider too. If your property is near a campus, for example, there is a constant high demand for rentals. However, even if your property is in a trendy or high-demand area, common sense dictates that if your property is in disrepair, has maintenance issues, unkempt landscaping, or lack of amenities, you will not be able to ask the same price as a tidy, well-kept, and regularly maintained property.
Other concerns include your property features. Walking scores, access to public transit and parking all affect a renter’s decision. Square footage, floor plan, and even the view influence the rental rate. Basic amenities like dishwashers, clothes washers and dryers (or hookups), balconies, fireplaces, off street parking, and access to fast internet have a great effect on rental rates. A simple way to increase the value is to add some of these amenities to your property. It can often be as simple as a coat of paint, some extra flowering plants on the grounds, or making sure the units are sparkling clean.
There are market factors to consider as well. For instance, when interest rates are low, more people will be in the market to purchase a home. When rent is equal to or exceeds a mortgage payment, tenants will do the math and realize it makes more sense to buy. With the limited amount of homes available on the market for sale in Peterborough and the Kawarthas since the pandemic, more people are in a position where they have to rent when they would prefer to buy simply because they are unable to find or cannot afford it at this time.
After all is said and done, testing and tracking is a time-honored way of setting rent prices. Err on the high side, however — it’s easier to lower prices than to raise them. And finally, don’t be afraid to offer incentives when the market is soft — even small offers like a free month of internet or a gift basket can tip the scales in your favor.