1.) If the vacating tenant has been a long-term tenant, and you had a good relationship, simply ask him. I bet over the years he's followed the neighborhood and knows from friends and fellow renters. He can tell you if he thinks you should charge more or less. Feedback from your vacating residents should be ONE piece of the info you assemble to determine.
2.) The quickest way to figure out the market rent is to put your tenant "shopping" hat on and start looking. I observe area rentals (signs, newspaper, etc.), see how they are priced, and watch to see how long they stay vacant. Many times, I'll even stop by to get up close to see the condition of the investment property. In every case, one that is priced right and sits for very long has "issues".
3.) Another resource is a property manager with local rentals (and a website) who knows what they're doing. They make the most money by pricing at the top of the market and usually have little interest in discounting unless a property sits vacant for too long. I usually price mine 2% to 5% below their prices.
The caveat with property managers is that some have owners that force them to overprice. That happens fairly often, but it is usually pretty obvious.
4.) Be careful not to to use an apartment as a comparable ("comp") for a single family home (or visa versa). Instead, I'd try to find another single family home in the same neighborhood as your income property.
5.) Maybe, there aren't any single family homes on the market to serve as comps. But, were there any in the past few months or year? Is there a way you could track those down by reviewing old newspapers or more importantly, your own notes on what homes have rented for?
6.) Check comps on www.craigslist.org.
7.) Do you feel that your current long-term tenant was paying the market rate when he moved in? I believe that a general guide to rental increase should be 3% to 5% per year. Use this amount as a starting point. (This rule of thumb may not apply in cities experiencing a large number of lay-offs.)
8.) Take a property manager to lunch. Maybe, if you said the right things in the right way over lunch, a property manager could give you her opinion — and maybe even back it up with some comps on properties she manages.
9.) A trick I have used is to always set the rent a little too high. If the phone does not ring with decent quality renters, I quickly lower it $50 or $75, or so. If the phone starts ringing then, you can be pretty sure that you have the right amount.
If you find someone terrific and they tell you they would love your house but can only pay $50 less than what you're asking, you can always say yes. Be flexible and listen for market feedback.
10.) The key for me is not to wait until you get notice to vacate to begin your pricing research. Go through the rental ads from good sources weekly. That way you'll be on top of things when the time comes.
11.) Don't be overly concerned with the best rent amount. More importantly, keep turnover to a minimum. Lost time is more valuable than a slightly higher rental amount. This money can never be recouped. One lost month can cost more than leaving the rent too low.
Advertising, curb appeal, repairs, even some painting can all be done during the current lease. It should only take a day or two maximum for cleaning and painting once they leave.
Play up the return of their deposit for super cleanliness at move-out. Remind your current tenant their lease ends August 31, not September 1. Your new lease should start September 1.
Bonus Tip: How to Build Value When Showing Rentals
When showing properties to prospective tenants, it's important that you build value in the eyes of the prospect. Three ways you can build value are:
- Building interest or excitement in the property,
- Building trust in you, the landlord or property manager, and
- Building a connection between the prospect and the property.
If you focus on each of these points, you WILL rent your property faster.
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Known to thousands as "Mr. Landlord", Jeffrey Taylor is the author of a dozen publications, books, and reports on various aspects of rental property management.