Landlord Pricing Strategy: How Should I Price My Property?

As a landlord, determining the best monthly price for your property can be tricky. Price point means everything;it will directly correlate to how quickly you find a tenant, the quality of tenant, and your return on investment. Here are some factors to take into account when determining a price point:

How much your property costs to carry doesn’t matter:

Ok, it matters to you. I get that. But the point to take into account here is this: the rental market isn’t concerned with your costs. You may have fitted your rental property with impressive kitchen and bathroom upgrades, beautiful new appliances and extra closets and storage space. These upgrades may have cost you a pretty penny, tempting you to raise the price point well above the average rental space in your area. Now, you may be thinking that these upgrades justify an additional, let’s say $400 a month, over the average rental unit cost in your area. Renters won’t see it that way. The upgrades are nice, and they may be attractive, but renters are typically renting because they cannot yet afford to buy. So these upgrades won’t justify an extra $400 a month in your potential tenants’ minds. By taking this route, you’ve narrowed down the market drastically, which will likely result in long vacancy’s. What’s important to keep in mind is this: those upgrades will still yield a strong return on investment when you are prepared to sell the property, so the monthly rental fees may not be that important in generating a return.

Upgrades can still justify a slight increase in monthly costs:

At the risk of sounding contradictory, it’s still a good idea to price your property slightly higher than the average cost in the area if you’ve fitted the space with some costly upgrades. The right rental price does correlate directly to how desirable the unit is. It’s a fine line to walk, but there is always a “right” price point to put on your property based on the area as well as the quality of the space. For example, if you see rental units with minimal upgrades, poor window views, set on the first floor going for $1200 a month, you shouldn’t feel the need to match that if you have nice upgrades, beautiful views from the window, and a higher floor level. View, updates, square footage, layout, floor level, extra windows, storage space and/or balconies are all important aspects that can justify a slight increase in price…just not a $400 a month increase.

Understand your specific market:

Monitor other rental properties in the area. What price points are they going for? How do they compare to your unit? Understand how many rental units are available in your market, which ones are filling up, and which ones are staying vacant. Check out online ads, local newspapers and free classifieds to understand your competition. An even better idea would be to check out these units in person, allowing you insights to compare properties. Monitor how many landlords are offering rental incentives to attract tenants; if you see an abundance of landlords offering incentives, this may indicate an overly saturated market, meaning you may need to lower your desired asking price.

Don’t underprice your property:

Underpricing your property will have two affects: an overabundance of rental applications, and an overabundance of poor quality tenants.  Remember, this isn’t a liquidation sale. You’re in this to make money, and to do it as easily as possible. Having a wealth of rental applications isn’t necessarily a good thing. It’s a lot of headache, and takes a ton of time to sift through. By the time you get to an application from someone who you may deem to be a quality tenant, they will likely have moved on. Some landlords underprice as a way to create a bidding war. That’s not a bidding war that you want. How will a handful of poor quality tenants, who don’t want to pay much to begin with, result in a positive outcome for you, the landlord? They’ll never bid the price you want, and you’ll end up taking a lower monthly amount than you had hoped for, along with the lower quality of client that comes with it.

Don’t overprice your property:

In addition to upgrades, some landlords overprice their property in hopes that it will give them wiggle room to negotiate. In theory, that’s a great idea. In practice, it rarely works. You’ll end up with minimal applicants, and long vacancies. The ultimate goal is to fill the unit fast; every vacant month is money out of your pocket. Tenants who can afford the higher end rental amounts are typically very selective, and securing a rental agreement with this audience can be a tricky and lengthy process.

For most tenants, price point is the ultimate factor. But remember, they are still people who want a high quality of life. Price is important, but it’s not the only factor. As a landlord, listen to the market and be strategic in determining the monthly price.