Is this the first time you’re renting out a home in Pittsburgh? Or, have you recently increased your investment portfolio and need to set a price for your rental? If you answered ‘yes’, then this article is meant for you!
Of course, one of the first things to do when renting out a home is to set the rental price. But pricing a rental isn’t always easy. You need to consider a myriad of factors in order to get it right.
The right rental price is one that will help you attract the right prospects to your property and will help you generate a decent passive income. In this article, the experts at DeSantis Property Management will walk you through 5 tips to help you price your Pittsburg home correctly.
1. Research what Comparable Competitors are Charging
Comparable properties are ones that are similar to the property you’re looking to rent out. For example, those that are located nearby, are of the same size and have almost the same market values. Your goal should be to look at how much comparable competitors are renting out units for. This should give you a rough idea of what to charge your tenants.
You can look for comparable properties in a variety of ways. One option you can use to look for comparable properties is by doing it in person. Speak to a couple of landlords and find out how much they are charging for a comparable unit. You may also want to inquire about their average vacancy rates.
Another option is to go online, which is quite convenient. A simple search on sites like Zillow, Trulia, or HotPads can give you dozens, if not hundreds, of results. But the best thing is that you may be able to narrow down those results by applying some filters.
Lastly, you have the option of hiring a property management company. Even if you plan on self-managing your property, getting the insights of an experienced property management company can prove invaluable.
2. Make the Necessary Adjustments
No two properties are the same, even if they share the same neighborhood and have the same number of bedrooms. There will always be some differences that factor into the value of the property.
The following are some of the factors that tend to determine the rental amount:
- The size of a home – Of course, the more square footage a property has, the more value it has.
- Property upgrades – A unit that offers upgraded features such as hardwood flooring and granite countertops, will cost more than one with more dated features.
- Property location – Location is often an important driving force behind the value of a property. The greater the accessibility of a location, the greater the comparative advantage it has over others.
- Floor level – Except in the case of walk-up apartments, tenants usually find apartments with higher floors desirable.
Other factors that can have an impact on rental price include the type of floor plan, availability of parking space, and amount of storage spaces.
3. Do the Math
Don’t make a blind investment. Just because a property looks desirable and is in a great location doesn’t guarantee that it’s going to be profitable. For you to have positive cash flow, the gross income will need to exceed the operational expenses.
There are multiple ways in which you can calculate your return on investment (ROI) including the simple ROI calculation, capitalization rate, and cash-on-cash return.
Using the simple ROI calculation, you’ll need to subtract your annual rental income from the annual operating costs. Then, you’ll need to divide that number by the value of the mortgage.
If using a cap rate, you’ll need to divide the net operating income by the purchase price and then multiply it by 100 to get the percent. As for the cash-on-cash return, you’ll need to divide the annual cash flow by the total cash invested and then express it as a percentage.
Generally speaking, most experts agree that a good ROI is one that falls anywhere between 4 and 10 percent.
4. Make Adjustments Based on Market Demand
After successfully marketing the home, prospects will start reaching out to inquire more about the property. This is where you can gauge the rental demand. Of course, the higher the demand, the higher the price and vice versa. But take caution not to get overexcited and overcharge tenants.
Overpricing your rental will only drive away tenants and you may have a hard time filling the vacancy. If there are little to no inquiries, that may mean two things, either the marketing was unsuccessful or you overpriced the rental. Make the necessary changes to either your marketing strategy or the price of rent.
If you’re still seeing long periods of vacancy, seek expert help from an experienced property management company. They’ll be able to help you rent out your property to long-term tenants.
5. Factor in the Season
Seasonality can also have an impact on rental prices. A pattern that tends to occur is that rental demand increases during spring and summer and plateaus during the cold winter months.
The reasons behind this phenomenon are many. However, the main reason is that renters find it convenient to move during the spring and summertime and not during wintertime. And understandably so, no one wants to disrupt their kids’ school year or uproot in the middle of a colder season.
Setting the right price for your Pittsburg home is key to running a successful rental business. That said, this is only half the battle when it comes to being a successful landlord.
If you’re renting out your property for the first time, it may pay to seek expert help. DeSantis Property Management is a professional and experienced property management company in Pittsburg, PA. We can simplify your life and help you maximize your rental income. Get in touch to learn more!