Setting and adjusting the rent for your property can be tricky. Set it too low, and it might not make up for the costs involved in owning and upkeep. But, setting it too high causes the renter pool to shrink, and time is wasted while it sits on the market. Finding the right balance between your own needs and those of renters is daunting for new and experienced property owners alike, so we’ve gathered a list of some factors that can aid you in your decision.
Factors and Figures
Sadly, there’s no easy formula to figure out what a fair price is on your property, but there are factors you can use to add to and subtract from a baseline. To find that baseline, do some research on what properties like yours are being rented for in your area. Focus on finding a property that is the same type with similar square footage and is ideally in a similar location. There may be a wide range, but this is just a starting point, so don’t stress too much about this number. Just try to find the average property that’s as close to yours as possible, and we’ll go from there.
Next, consider all the ways that your property may differ from the one you’ve found:
The square footage may be similar, but are there more or fewer bedrooms? Does one home have a closed patio included in the square footage, while the other has a larger kitchen and living room? The larger internal living space may be worth a bit more.
Is one property much newer or in drastically better condition? It may be worth investing some money in upgrading your property so that prospective renters can see themselves enjoying the space.
Is there a difference between the amenities provided? HVAC systems, wifi speeds, and the number and quality of essential household appliances can all be deal-breakers for some renters, and they could drag down the price of rent.
Is the location different? Even if the properties are in the same neighborhood, if one is on a busy road while the other is in a quieter location, that can greatly influence what renters are willing to pay.
How much money should be added or subtracted for each of these factors is a whole other challenge. Extensive research and experience are indispensable in that regard, and that’s why Delaware Realty Management is here for you! Don’t hesitate to contact us so we can help you set the perfect rent price.
Calculating Your ROI
Luckily, there is an easy formula for calculating your return on investment (ROI) after deciding on a rent price, so you can see how much money you should be able to recoup after a year. First, subtract your yearly expenses on the property (taxes, upkeep, insurance, or utilities that renters don’t pay themselves) from the total rent you would charge for that year to get your annual return. Then divide that by the total amount that you invested in the property (including the base property cost, closing cost, and any remodeling or upgrading you did). The result is your ROI!
For example, if you are charging $2,000/month for rent, totalling $24,000 for the year, and your annual expenses were $6,000, then your annual return is $18,000. If you bought the property for $230,000, closing costs were $5,000, and remodeling cost you $15,000, then your total investment was $250,000. Simply divide the annual return ($18,000) by the total investment ($250,000), and your ROI is .072, or 7.2%. In that year, you will recoup over 7% of your initial investment.
Property Management in Delaware
As always, if you’re an investor and interested in owning property in the beautiful state of Delaware (or already have one and need help) – we’re here for you! Connect with us for all your property management needs.
Your partner in Delaware property management!