Deciding upon the right price for your rental property is quite the balancing act. If you choose a low price for your unit, you will see plenty of happy renters and low profits. If you price them high, you will attract very few renters and still have low profits.
If you’re having trouble determining the right price for your rental unit through the low season, there are two basic ways of doing so. First, we recommend that you calculate your ‘cost plus margin’. Next, compare your calculations to where your rental property stands in the market spectrum.
Most landlords and property managers use these pricing techniques separately, but when combined, they can be very powerful.
1. Cost Plus Margin
c is very crucial to run a profitable rental property. You can calculate this by first determining your cost of ownership, which includes:
- Purchase price
After calculating all of these factors, you can calculate your break-even point and start setting revenue goals. For instance, if your calculations tell you that you need $400,000 to cover your ownership costs and break-even, you should charge 0.8% to 1.1% of your cost (according to the 1% rule), which is anywhere between $3200 to $4400 in this case.
2. Market Research
Besides your calculations, you will also want to know about charging for similar rental units around your property. If you charge an unreasonable rent during the low season, you will face a tough time finding tenants willing to sign a lease.
This is where seasonal pricing trends come into play. You see, there are plenty of factors that can affect the rental market. This includes demographic changes, urbanization, tech progress, globalization, and of course, the short term leases during the pandemic. Considering how much of a margin you wish to charge, if the rental prices in your state or area have dropped, you will have to adjust your margin accordingly.
On the other hand, most renters negotiate for low monthly prices by signing long-term rental agreements. While a low rent may sound like it will hurt your profits, you will also have to deal with a high vacancy rate if you get greedy. Now ask yourself which is better, a positive cash flow or a negative one?
Now that you’ve learned how to price your rental property during the low season, all you have to do is find the perfect middle ground between your margin and the rental market.
If you have any other financial questions for your rental property or perhaps need help dealing with your rental property and tenant issues, our experienced property managers are here to help.