So, you’ve taken your first foray into real estate investment. Now, you seek to generate returns by turning your property into a rental home. Here comes the million dollar question! How do you set your rental price? Having a competitive rental price for the property you invested in is one of the keys to your success as a landlord. If you price your rental property too high, it may sit unoccupied for long durations. Pricing it too low and you will run the risk of losing money on your investment.
Of course, you can just search “hdb rental price” and be done with it. However, it doesn’t kill to do some deeper research into rental prices to ensure that you get the whole picture before putting down a number. Here are a number of tips to help you determine if the price is right on your rental property!
1. Know your competition
Before you start, take a look around the neighborhood that your property is located in. Knowing your competition and who you are up against is the first step to crafting a winning investment pursuit. First, you must understand how the area fits into the city. Is it a newly developed area with peace and quiet? Is it up-and-coming with a lot of demand? It is a more high-end area where people will pay a premium to live? Is it within walking distance to places with good nightlife and entertainment? What are the amenities nearby? What is the character of the neighborhood? Once you have answered all these questions, you will get an idea of how your property’s area fares when compared to other areas.
Once you have evaluated the area, you will get a rough idea of how your location fits into the larger picture. Then, research similarly sized rental units (or comparables) in the same area. This is vital in order for you to know how your property stacks up against other properties in the surrounding area with similar amenities and similar property size. Using this information as a baseline, you can then decide how much you price your rental at. Do be sure to take into account what facilities your property offers as well. This amount can be increased based on how much extras you provide. For example, a fully furnished, or even partially furnished rental will bring in much more in rental compared to an empty unit. Similarly, you can raise your rental price if you have put much more investment into the interior of your property.
2. Know your local market
Before you set any price, be sure to do some research on your local market. It’s one thing to know your own area, and another to know the local rental market. Rents can rise high and fast, which can make market research feel a bit daunting, especially if you are doing it on your own. It’s a good idea to do some research to find out the median rent in your area and in nearby towns and cities. This helps you get a good picture on the prevailing rental rates, whether they are falling or rising, by how much, and also if the rental prices are projected to increase or decrease.
Keep in mind that your rental price should be a dynamic number. It will change in relation to local market conditions, as well as in relation to your competition. Ultimately, you hold the key in deciding what to charge, and how much to increase and decrease rental rates based on each situation.
3. Know your “rent range”
While market-level information is helpful, the most important thing is to dig down to the property and amenity level to be sure that the price you are setting is competitive to the prevailing rental price in your immediate area. From your research of properties with similar facilities, similar amenities and in similar areas, come up with a range of rental prices. This helps provide you with a guide to determine if the price you want to charge is within the range of prices for a home of similar size and location as yours.
Keep your mind open and have a healthy range for your rental price. It’s not a good idea to have too rigid a number for your rent price. It is better to first determine the highest and lowest you can go, and then set your rental price higher than the average you are looking to reap. This method gives a bit of leeway for you and your potential tenant to negotiate on rental price, because who are we kidding, your tenant will be bound to negotiate the price, even if they can afford it.
With all this in mind, you should remember that although the purpose of your investment in rental properties is to generate returns, maximizing rental should not be your goal. Rather, your goal should be to maximize the profit earned from your rental. This means that a whole host of other issues also come into play, such as tenants who pay on time and who take care of your property.
Sure, you might be able to get a signed lease with a high rent, but that doesn’t mean its worth it. Sacrificing a bit of rent to get good tenant will surely pay off it the long run. Just be sure that the amount of rent that you are charging is comfortable for both you and your tenant.