If you are considering listing your property on the rental market, a lot of folks will give you their opinions and belief about rental property pricing. Unfortunately, most of these opinions and beliefs are mere myths with no atom of truth in them.
To ensure you don’t get confused about what to believe and what not to believe, we will highlight six of the most common rental property pricing myths and the truths.
Myth 1: Rent can be valued as much as I want
A common myth is that the rent price on a property can be as high as they want. This can theoretically be true if there is no other rental property nearby, due to the laws of supply and demand.
If your rent price is too high in relation to the amenities, size, and comparable properties in the environment, you will get few to no viewings at all. This will lead to the property being on the rental market for long and might end up being priced too low than its worth. We recommend familiarizing yourself with market trends and rent prices and setting your rent accordingly to help maximize your revenue in the long run and ensure your property is hardly ever vacant.
Myth 2: Rent can always be raised when and how I want
Many aspiring landlords believe they can always raise their rent when and by how much they want. This is however not true due to the existence of various forms of rent controls. Several districts and counties in the United States set limits on how landlords can raise rents.
Rent raises are usually not allowed during the lease agreement period, within a twelve-month range of a previous increase unless there is a vacancy. Landlords are also required to provide a 30 to 60-day rent raise notice to tenants depending on the percentage increase which is limited in relation to Consumer Price Index in areas such as Washington and California.
Do ensure to familiarize yourself with the rental laws, ordinances, and rent control acts in your state in order to be on the safer side. We’ve written a Rent Control Cheat Sheet for the San Francisco Bay Area and the Greater Seattle Area that is available for free download.
Myth 3: Rent should be set in relation to expected inflation in rental pricing
A lot of Landlords believe inflation can be used as a parameter for establishing rental valuation. Landlords who are renting out for the first time or who haven’t been in contact with the rental market, especially if renting out after the property has been occupied for a long time are more susceptible to this myth.
Several other economic factors apart from inflation affect rental pricing and rents based on the expected inflation rate can end up either being over- or underpriced both of which do not bode well for the landlord. If underpriced, most people won’t want to check it out due to the belief that it is sub-standard; and if overpriced, renters will obviously prefer cheaper properties.
Bottom line, setting rents based on expected inflation in rentals is a risky and unpredictable strategy. It is not recommended.
Myth 4: Landlords know the rental value of their property best
Never assume you are the best person to value rent on your property. Even after comparing market trends and price of comparable properties, a professional real estate agent is still the best person to offer you advice on rental property pricing as they are more exposed and versed in rental valuation.
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Myth 5: I can change my rent if the applicant can afford more than my set rent price
An applicant’s monthly income is not enough reason for you to change your rent price. It is also violating fair housing laws. Your renter might decide to compromise if you are lucky, otherwise, you run a huge risk of him refusing not to pay more than the listed price and opting for another apartment. This can translate into the property being vacant for a longer period than necessary thereby losing money in the process.
We recommend increasing rents based on the condition of the property and comparable properties. In the past year, if the home value increased because you upgraded amenities, this should give you moral and legal ground to increase the rent price.
Myth 6: Rent price should not be set in stone
As with any business practice, hurdles are thrown your way and may affect your primary investment strategy. In the case of investing in rental properties, a neighbor might list their property on the market a week after you listed yours. This will affect the competition in the neighborhood and require you to pivot your pricing strategy.
As a landlord, you need to be flexible in your pricing and adapt your pricing to the weekly market. Having an understanding that your rent price should not be set in stone while finding a renter will give you an upper hand against competitors.
However, once you’ve approved an application and signed a lease with your renters, adjustments shouldn’t be made until the lease has expired.
If you are a landlord or intend to be one, do not believe any of the above myths or use them as a yardstick for setting your rental property price. They can be dangerous for your rental investment strategy in the long run. You can also opt to get help from property managers as well. At a reasonable property management price, you can get rid of the day-to-day hassle of being a landlord and ensure that you are maximizing your rental income.
If you are still confused on how to craft your rental pricing strategy, you can get a free rent analysis with Onerent’s (now Poplar Homes) rent estimate calculator.