How to determine the rental cost of a property

Learn how to determine rental price, keep track of the rental value of your home and the best ways to collect rent.

How to determine the rental cost of a property

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To determine how much rent to charge a tenant, many landlords use the 1% rule — which suggests charging 1% of the home’s value for rent. For example, a home valued at $220,000 would rent for $2,200 per month. However, there are many factors to consider when setting a rental price, such as local rent control laws, the cost of similar rentals in the area and changes in the local market. And, of course, this year requires additional considerations and flexibility given the financial circumstances of many renters as a result of COVID-19.

According to the Zillow Group Consumer Housing Trends Report 2019 , 85% of renters also find it extremely or very important that their home is within their initial budget. If you price your rental too high, your place could sit unoccupied. Too low, and you run the risk of losing money on your investment.

Look up rent control laws in your area

Not all states have rent control, but those that do are able to limit the amount of rent that can be charged and the amount that rent can increase each year. Rent control laws are set at the local level, so the average rent price by city will vary. Places that do have rent-controlled apartments and properties are:

  • California
  • Maryland
  • New Jersey
  • New York
  • Washington, D.C.
  • Oregon

Be sure to check with an attorney whether your city has rent control and what laws and restrictions are in place before you determine how much you should charge for rent. Keep in mind that many jurisdictions currently have moratoriums on rent increases to provide housing stability for renters during this uncertain time.

Research the rental value of homes in the area

It’s important to know how your property stacks up against other properties in the area that have similar amenities and the same number of bedrooms and bathrooms. Using your competitors as a baseline, decide how much more you can charge in rent for the extras your property offers.

Aside from the property itself, a home’s rent price can be increased by the neighborhood it’s in and the conveniences around it. We found that 77% of renters want to live in a neighborhood that feels safe and 57% say their commute to work or school influences their home choice — though the rise of remote work may change this in the future. Here are some other highly important home and neighborhood characteristics for renters:

How to determine the rental cost of a property

Check changes in the local market

Remember that your rental price is typically a dynamic value that changes in response to your local market conditions and your competition. It’s ultimately up to you to decide what to charge and whether to increase (or decrease) rates at lease renewal time — and it’s important to keep in mind that this year was a challenge for everyone.

Determine a rental price using Zillow’s Rent Zestimate tool

A Rent Zestimate is Zillow’s estimate of a home’s monthly rent price, calculated using a formula. It’s available for 114 million homes in America, and is a helpful tool for landlords who want to determine appropriate monthly rent prices.

The home data we’ve compiled to generate a Rent Zestimate varies by location — some counties provide all the data we could hope for, but others are lacking key information like number of bedrooms and bathrooms, or even square footage. We’ve published a Rent Zestimate accuracy table that shows the tool’s accuracy at national, state, county and large metro area levels. You can visit your home facts page to make sure everything’s up to date — if you haven’t yet claimed your home on Zillow, we’ll verify your ownership first, which is a quick and simple process.

Budget for repairs, maintenance and utilities

Use accounting software or a simple spreadsheet to help plan for the cost of repairs and maintenance. Over the course of a year, maintenance may cost around 1% of the property’s value, so look into setting aside 50% of your rental income to spend on repairs. If you’re including gas, electric, water, sewer and garbage in the rent price, you’ll also need to get an estimate of what those costs will be when your property is occupied.

Determine the best ways to collect rent from your tenants

Once you’ve figured out how much you should charge for rent, you’ll want to determine the best way to collect rent — either online or offline. This will vary depending on your tenants, but it’s always best to offer multiple ways to collect rent. According to Zillow Group Consumer Housing Trends Report 2019 survey data, 58% of renters say they want to pay their rent online, but only 36% are given that option. Here are some other ways to collect rent:

Through a property manager: Even if you don’t hire a property manager to oversee your property, you can hire one just to collect rent.

Face-to-face payments: You can meet up to collect rent, but be wary about collecting cash.

Mail: You can have the tenant send you a personal check, money order or cashier’s check.

Drop box: This option is more secure than sending a check through the mail and doesn’t require you to meet in person.

Direct deposit: You can set up an automatic online transfer from your tenant’s bank account to your business checking account.

Online: Payments are efficient, secure and easy to use. Zillow Rental Manager offers an online payment tool that is free for you — and for your tenant, if they choose to pay with ACH.

Rent collection apps: You may be able to use a rent collection app like PayPal or Venmo through your mobile device or computer.

What is the average late charge for rent?

As a landlord, you’re responsible for collecting the rent on time — but every now and then you may encounter a situation where rent is late . Late charges for rent typically don’t apply until at least three days after the rent is due, and they’re often structured in one of two ways:

  • Flat fee: The renter is charged a percentage of the month’s rent.
  • Daily fee: The renter is charged a predetermined fee for each day the rent is late.

Staying flexible whenever possible can be beneficial to maintaining your landlord-tenant relationship. Even before the pandemic, a significant share of rental households are only one large expense away from being unable to pay rent — we found that only 51% of renters say they could cover an unexpected expense of $1,000.

These are the basics of how much to charge for rent and ways to collect rent from your tenants. For more information on being a landlord, check out Zillow Rental Manager . You can create and manage a rental listing; post it on Zillow, Trulia and HotPads; screen tenants; manage rent payments and more.

How to determine the rental cost of a property

It is a common misconception that the cost basis for a rental property is the price paid for a property. The cost basis for a rental property is actually the cost of acquiring the property considering not just the price, but also expenses incurred in the sale.

The cost basis is important because it helps determine what you will need to report as taxable income.

Calculating Cost Basis

The steps for calculating the cost basis of a rental property are the same regardless of how you paid for the property.

Original Cost of the Investment

First, you need to know what you paid for the property. This is the total amount of your loan or how much cash you paid.

Costs Related to Acquisition of the Property

Next, you take the price you paid for the investment and add certain expenses related to the purchase of the property. Some of these items include:

Closing Costs – not all closing costs are added to the cost basis. Only closing costs you pay can be included, not any paid by the seller. In addition, any costs that are otherwise deducted on income taxes, like loan origination fees and prorated interest, are not included in the basis.

Costs related to the purchase of the property that might be added to the cost basis include:

  • Settlement costs
  • Title search
  • Title insurance
  • Recording fees
  • Survey
  • Realtor’s commissions
  • Appraisal fees
  • Transfer taxes

The IRS provides a full list of closing costs that are added to the cost basis of your property.

Property Improvements

Improvements made to the rental property beyond the initial purchase price might also be added to the cost basis. The items should be physical improvements that an appraiser would likely say increase the value of the property. Some examples include:

  • New roof
  • Kitchen remodel
  • New HVAC system

So, taking the above information let’s look at the cost basis for a rental property that was purchased for $200,000. The qualifying closing costs are $10,000 and a full bathroom remodel was $7,000. This would mean the cost basis for the property would be $217,000.

The calculation of a rental property’s cost basis is not an exact science and has many variables. If you have questions it is important to contact a tax advisor.

Cost Basis for Calculating Depreciation

When determining the basis for calculating depreciation , the cost basis of the land and building need to be calculated separately. Unlike the building structure, land doesn’t depreciate. So, the value of the land and the value of the actual housing structure should be looked at individually.

Using a property tax assessment is one way to calculate the difference between the cost basis of the land and building separately.

For instance, if you have a property with a combined land and structure cost basis of $150,000. The tax assessment says that 30% of the property value is the land and the other 70% is the building. You would use 70% of $150,000 as the cost basis for calculating depreciation.

It is surprising how many investors miscalculate the cost basis, and so it is always beneficial to talk with a financial advisor to make sure calculations are accurate for tax purposes.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

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It’s surprising how many real estate investors manage to get their rental property cost basis wrong. The first thing to know is that cost basis, adjusted cost basis, and depreciation basis are three different things. In this quick post, we help you understand the differences, show you how to assign closing costs properly, and offer a free rental property cost basis spreadsheet for download.

Please remember that we do not offer accounting or tax advice. This article should be relied upon for informational purposes only.

#1 Calculate Your Original Cost Basis

Start with the full purchase price shown in the contract. For example, let’s say you recently bought a rental property for $250,000. It doesn’t matter if you paid all cash or financed it with a new mortgage, hard money loan, etc. You paid $250,000 so that’s your starting number.

You’ll next add some closing costs, but not others. Why? Because only certain closing costs can be capitalized, while others are fully expensed in the same year you purchased the property.

How to Handle Closing Costs

The following closing costs should be capitalized and added to your basis, but only if you paid them (not the seller), per IRS guidelines:

  • Owner’s title insurance (not lender’s)
  • Transfer taxes
  • Legal and escrow fees
  • Survey fees
  • Recording fees
  • Utility installation charges (these are not typical)
  • Any seller owed items you agree to pay without being reimbursed (commissions, taxes, interest, improvements, etc.)

Add costs associated with all items listed above to your original $250,000 purchase price to arrive at your original cost basis.

Closing cost items you cannot add to your original cost basis include:

  • Insurance premiums for casualty (fire, hurricane, etc.)
  • Rent or utility charges for occupancy prior to closing
  • Property taxes
  • Loan and refinancing costs or fees (points, appraisal, etc.)
  • Pre-paid interest on your loan(s)
  • Lender’s title insurance
  • Amounts placed in escrow to cover future expenses

The first three items on this list can be deducted as normal expenses for the year in which you acquired the property. Loan costs are not deducted but are instead amortized over the expected life of the loan. Amounts placed into escrow accounts are not deducted until the actual expenses are incurred and paid.

#2 Add Capital Expenses to Calculate Adjusted Cost Basis

Let’s say your original cost basis ended up at $254,500 after adding relevant closing costs to your purchase price. You’ll now want to add in any subsequent capital expenses to arrive at your adjusted cost basis. This would include costs for projects such as a new roof, major landscaping work, electrical system upgrades, kitchen renovation, new driveway, or the addition of an extra bedroom or new garage, among many others.

Capital expenses increase your cost basis because they are considered long-term improvements that have become integral parts of the property. For example, if you spent $20,000 on a new master bathroom, you’ll simply add this amount to the $254,500 basis to arrive at an adjusted cost basis of $274,500.

If your rental property was not immediately placed into service after purchase, meaning it wasn’t already occupied or at least ready to be occupied by a tenant, you’ll also capitalize these preparation costs by adding them to your adjusted basis. These might include items that are usually expensed, like minor repairs or cleaning charges.

If you spent $500 on repairs and then another $300 on cleaning before listing your rental property for rent, your adjusted cost basis will look like this:

  • $250,000 purchase price
  • + $4,500 closing costs
  • + $20,000 bathroom renovation
  • + $800 “make ready” costs
  • = $275,300 adjusted cost basis

#3 Cost Basis for Depreciation is Different

It’s tempting to simply roll the $275,300 figure into a depreciation schedule and then take your deduction all the way to the bank. But that’s just not how it works. Land doesn’t depreciate and some portion of your $250,000 purchase price must be allocated to land value.

Assuming you did your bathroom renovation and rent preparation work in the same calendar year that you acquired the property, you can start with your $275,300 adjusted basis number. Then simply subtract a justifiable land value amount from the purchase price to arrive at your first year adjusted cost basis for depreciation.

For example, let’s say your county assessor allocated 25% of the property value to the land and 75% to the improvements on last year’s property tax bill. That means you’ll simply deduct 25% of $250,000 (or $62,500) from $275,300.

That leaves you with an adjusted cost basis for depreciation of $212,800 for your first calendar year of ownership. That amount depreciated over 27.5 years yields a tax deduction for depreciation of roughly $7,738 per full calendar year. Unless you closed on January 1, your first year depreciation deduction will of course be less.

Rental properties are one of the better investment vehicles in real estate. Along with tax benefits and passive income, rental property investments will produce strong returns year in and year out, no matter what the market is doing. In comparison to other types of investments, a rental property investment can safeguard investors and their money, helping to produce significant income with little-to-no effort for years to come. But what about the initial costs associated with purchasing a rental property? Better yet, what are the long-term rental property expenses that come with your investment?

Investing in rental properties is lucrative in many ways, but investors must understand the overall costs of this endeavor. Along with purchase expenses, a rental property will demand additional costs through its lifecycle. This makes it imperative for investors to understand the “big picture” of rental properties, including both the current and future costs associated with a rental property investment.

How To Estimate Expenses For A Rental Property Investment

Generally speaking, there are two avenues to pursue when financing a rental property: buying it as an investment to rent it out from day one, or owner-occupied. The latter entails investors purchasing the property and living in it for a required twelve months as part of the owner-occupied loan requirements.

That said, the two sides will have very different purchasing costs. For example, a rental property, one you intend to rent out from day one, will require investors to put anywhere between 20 and 30 percent down. On the other hand, an owner-occupant property allows investors to acquire the investment with as little as 3.5 percent, thanks to FHA financing. Remember, financing a rental property will involve different mortgage financing options, which will ultimately affect the overall amount you spend.

Aside from the purchasing cost, you’ll also want to get an accurate estimate of the expenses associated with running your rental property. After all, your investment may not be worthwhile if your expenses match or exceed your potential revenue. Unpredictable variables make calculating expenses tricky. We’ve gathered three tips to help:

Talk to property managers in the neighborhood: The best source of accurate information in your local market is property managers since they’ll have a working knowledge of rental expenses in your neighborhood. Try calling several property managers. Let them know that you’re interested in hiring a manager, and while you’re having a conversation with them, ask them what the total expenses on the property would be.

Network with your local real estate investor club: Another strategy is to network with other income property owners in your area. By making friends, you’ll have an easier time getting insider information. They can tell you what they’re paying in rental property expenses, along with other tips and advice.

Call utility companies: Last but not least, get accurate data by contacting your local utility companies. Ask for rates and quotes, and also ask for average utility bills over the past few months. High utility costs can also be a clue to a possible defect or inefficiency at your property that will be worth investigating.

14 Rental Property Expenses For Investors

Aside from initial costs, a rental property investment will encompass a range of expenses. It is essential as an investor to remain informed on all the possible expenses for your investment. In doing so, you can make accurate estimations when creating a budget. The following outlines the expenses to consider when financing a rental property:

How to determine the rental cost of a property

You might be wondering, how much can I rent my property for? As a landlord or property manager, setting the rental amount can be tricky. You want to ensure that the price is low enough to attract applicants, while high enough to cover costs. Pricing units lower may result in problematic tenants, but higher prices can lead to longer vacancies. Determining the right price for your unit, or units, can be a challenge.

Fortunately, there are a number of straightforward steps landlords can take to figure out how to properly price rentals. By using these simple steps, you’ll have a better idea of the going rate in your local market and what you want to charge.

1. Research Similar Listings

Even if you think you know the rents for your area, it’s always good to check out the local listings. Use Zumper’s search tools to find similar listings nearby. Look at the amenities offered, the location, the square footage, and other features. How does your rental stack up? If your building is considerably newer or closer to the city center, it might be worth a premium. If the unit is awkwardly laid out, older, or further out, it may need to be priced lower than the average.

2. Check Home Prices

If you’re renting a single-family home or duplex, there may not be a plethora of other rentals to compare to nearby if your area is largely apartments. If this is the case for you, research recent home sales to see what buyers are paying for homes close by. Then use a mortgage calculator to get a ballpark figure of what the homeowner is paying for their mortgage each month. You can then charge roughly 1% of that estimated mortgage value as monthly rent.

This tip is a reverse-engineer of the standard investor advice to only buy a property that meets the 1% rule. If you can buy a home and rent it for 1% of the total value, give or take other factors, it is considered a sound investment. We use this rule in reverse to determine a rough figure for monthly rent on your unit.

3. Location, Location, Location

You’ve heard it many, many times before. That’s because it’s true. Location is one of the most important factors when it comes to housing. Your property’s proximity to the city center, shopping, entertainment, and mass transit can have a huge effect on the rent you can charge. Many tenants want to be close to their school, work, food, and entertainment. If you are in a prime location, often tenants are willing to pay a premium to be close to the action. However, if your location is further out and requires a commute, you may find it harder to command a high rental rate.

4. Consider Your Amenities

For landlords wanting to raise rents, a smart investment in upgrades and renovations can give you room to increase the monthly rent. Tenants are looking for more amenities , such as a laundry room, playground, gym, or swimming pool. These amenities can increase the appeal of a rental and give you wiggle room to increase rent.

Other renovations to the rental unit itself, such as: upgraded flooring, granite countertops, new appliances, may be worth the increase in monthly income. With any renovations or upgrades, be mindful of the ROI. Do not pour money into a unit that cannot recoup that cost. Even if it’s the nicest rental in the area, you cannot reasonably charge much more than the next highest unit. When you outprice the market, you will find difficulty finding applicants.

5. Ask the Pet Question

A big factor in rentals is pets. Millions of renters own pets and look specifically for houses or apartments that will allow them to keep their pet. If you allow pets in your rental , this may give you a competitive edge over other units. This can allow you to increase rents while keeping a list of interested applicants. Some landlords choose to ask for an upfront pet deposit, or add an additional fee to the monthly rent. Online you can explore what other landlords are doing and choose how you will answer the pet question yourself.

Remember, if you allow one pet, you do not have to allow all pets. You may determine that your rental is a good fit for cats, but not for dogs. Or you may meet a potential tenant that has several large dogs. As the landlord, you can place rules (as legal) regarding pets.

6. Factor in Your Expenses

By setting rents below market rate, you can ensure a lot of applicants and a quick turnaround. You’ll soon find someone to move into your vacant unit. However, it could also result in under-qualified tenants who are inconsistent with rent. When determining rental prices, you need to factor in your own expenses. Will your rental income cover your mortgage, property taxes, home insurance, and maintenance costs? Are you hiring a property management company ? Or will you be losing money each month? It is better to rent smart than to rent quickly.

Determining rental prices is always a balance. Striking the balance between a price that is low enough to encourage applicants while high enough to ensure you cover costs is crucial to your success as a landlord. Using these straightforward steps, you can figure out the right price for your unit.

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What is the best way to find the land value of a rental property i just sold (both when I bought and when I sold). Appraisal? Town records?

For when the property was sold – You can check with the county tax assessor office to see if they have an up-to-date break down of the property between land and structures or you can get an appraisal of the property.

For when the property was purchased – here is one way to determine the original cost of your land. You will need

  • a copy of your property tax bill
  • the original cost of what you paid for your property in total

Find your cost basis by adding your home’s purchase price to the closing costs that you paid when you bought it, excluding any loan-related costs. For instance, if the house and land together totaled $150,000 and you paid another $3,000 in closing costs, your basis would be $153,000.

Divide the assessed value of your house by the total assessed value of the house and land. For instance, if your county assessed your home at $125,000 and the land at $25,000 for a total assessed value of of $150,000, you would divide $125,000 into $150,000 to find that the house represents 83.33 percent of the total value of your property.

Multiply your cost basis by the percentage share of the house to find the value of the house. With a house that represents 83.33 percent of the total property’s value of $153,000, the house would be worth $127,495

Subtract the house’s value from the total value to find the land value. If the total value is $153,000 and the house’s value is $127,495, then the land’s value would be $25,505.

  • If you have a copy of an appraisal, and it breaks out the house and land values, you can also use it to establish the allocation of value between the house and land. The Internal Revenue Service’s rule of thumb is that your allocation should be based on fair market values however you calculate them. You can also use an allocation that appears in your purchase agreement, if it has one.

You’ve spent weeks looking at commercial space to rent and have finally found the ideal location for your growing business. Before you sign a lease, don’t make the mistake of thinking that the monthly rent per square foot is all you need to know.

Calculating the cost of commercial leases can be complicated, and space can end up costing much more than expected. Here are the most important things to know to calculate your commercial rent.

3 Important Lease Terms to Understand

If you’re leasing an entire building the rental cost is pretty easy to calculate. But most businesses lease a space within a multi-tenant property. This means that, in addition to the actual space, you probably have to pay for your share of the common areas.

Here are three important lease terms to know so that you can accurately calculate your commercial rent:

#1 Rentable square feet

The amount of space the landlord can charge you for. Owners of commercial property often follow the standards set by BOMA (Building Owners and Managers Association International) to calculate the rentable square footage.

#2 Usable square feet

The amount of space you are leasing after deductions from the total square footage are made for space you don’t have access to. Space that isn’t usable, but that you may still have to pay for, includes interior walls and portions of the exterior walls, hallways, and building lobbies.

#3 Building load factor

The percentage of common area space in the building that is factored into your lease payment. For example, if a 100,000 square-foot office building has a 10,000 square-foot lobby, the load factor is:

  • 10,000 sq. ft. lobby / 100,000 sq. ft. building = 10%

This additional square footage is added onto your lease. So, if you lease a 1,000 square-foot space in a building with a 10% load factor, the total square footage you’ll be charged for is 1,100 square feet.

Types of Commercial Leases

Now that we know these three important lease terms, let’s take a quick look at the most common types of commercial leases:

Triple Net (NNN)

The three ‘nets’ of a triple net lease are: property taxes, property insurance, and common area expenses (sometimes called CAM or common area maintenance). With a NNN lease you’ll pay a base rent plus all of the triple net extras. So, if you have a 1,000 square-foot space that rents for $8 per square foot per year and the NNN fee is $4 per square foot per year, your commercial rent with a NNN lease would be:

  • 1,000 sq. ft. x ($8/sq. ft. per year + $4 NNN/sq. ft. per year) = $12,000 per year or $1,000 per month

Modified Gross (MG)

Modified gross leases don’t include all the NNN fees. The only additional charge you pay for with a MG lease is utilities. For example, if you’re renting a 1,000 sq. ft. space and the modified gross rent is $10.00 per square foot per year, your rent would be:

  • 1,000 sq. ft. x $10/sq. ft. per year = $10,000 per year or $833.33 per month + utilities

Full Service Gross (FSG)

Full service gross leases are basically the rent paid for occupying the space. The landlord covers all property operating expenses, including taxes, insurance and utilities. If the size of the space you’re renting is 1,000 square feet and the rent is $12 per square foot per year, then your commercial rent is:

  • 1,000 sq. ft. x $12/sq. ft. per year = $12,000 per year or $1,000 per month

Percentage

Percentage leases are usually used for renting retail space in a large shopping mall or for anchor tenants in a large commercial property. A percentage lease has a lower base monthly rental fee but also collects a percentage of your gross monthly sales.

For example, if you’re renting a 10,000 square-foot space with a base rent of $5 per square foot per year and the landlord collects 1% of your gross sales above $50,000 per month, your commercial rent on a percentage lease would be:

  • 10,000 sq. ft. x $5/sq. ft. per year = $50,000 per year or $4,167 per month
  • $120,000 in gross sales per month – $50,000 = $80,000 x 1% = $800
  • Total rent on a percentage lease: $4,167 + $800 = $4,967 per month

Steps to Accurately Calculate Your Commercial Rent

Here are the steps to follow to accurately calculate your rent on a commercial space:

  1. Determine the square footage you’ll actually be charged for
  2. Determine the base rental rate
  3. Determine any ‘extra’ rental rate such as NNN fees, MG fees, or your percentage of gross sales
  4. Add everything together to calculate your total rent rate
  5. Multiply your total rent rate by the square footage charged by the landlord
  6. Divide the total by 12 to calculate the total monthly cost of your commercial rent

Commercial Rents Are (Almost) Always Negotiable

Calculating a commercial rent can be complicated, and if you’re not careful you could end up paying more for your lease than expected. That’s why it’s important to understand the actual square footage you’ll be charged for along with any extra fees like CAM, utilities, property taxes or insurance.

The good news is that commercial rents are almost always negotiable. While you want to keep your business profitable and growing, building owners have their operating costs in mind. When you’re negotiating your commercial lease, aim for a middle ground that’s a win-win for both you and the landlord.

How to determine the rental cost of a property

Renting out your house might be worth considering, especially if you’re ready to relocate and you’re opposed to selling. Picking up a tenant could help you pay off your mortgage more quickly. Then, you could put the money you’ve earned toward a financial goal, like perhaps into a retirement account. If you’re not sure what to charge for rent, we’ve got some factors you’ll need to take into account.

What to Consider Before Renting out Your Home

Deciding to rent out your house rather than sell it might make sense for various reasons. Homes can be tough to get rid of, particularly if your asking price is too high or your home listing isn’t visible enough. And selling might not be a viable option if you haven’t built up enough equity in your home. If you’re looking to purchase a different home, you could take your equity and use it to make a down payment.

But allowing someone to rent your home, even temporarily, is a big deal. For one, are you ready to become a landlord? Regardless of how responsible your tenants might initially seem, they could end up destroying your home or bringing down its overall property value. And you’ll need to be prepared to have a flexible schedule so your tenants can reach you if a toilet clogs or a pipe bursts.

Turning your home into an investment property could be a financially risky move as well. You might have to spend money to fix up the property before you can rent it out. While there are many tax breaks available to landlords, it’s best to plan on paying for expenses such as property taxes, maintenance costs and homeowners insurance. Plus, you’ll be on the hook for paying the mortgage as well if your tenant suddenly moves out and it takes time to find a replacement.

On the other hand, renting out your home could provide you with enough money to pay off your mortgage. That could be a great way to rake in extra cash if you’re waiting for your home’s value to go up. You could then use the remainder of your earnings as profit or savings.

How Much Should I Charge for Rent?

How to determine the rental cost of a property

When you’re trying to determine how much rent to charge, there are a number of things you’ll need to think about. A good first step is figuring out what your home’s currently worth in the market. That amount could be different from the price you originally paid for your home.

You could use a website like Zillow to estimate your home’s value. But it might be best to find a home appraiser who can give you a more accurate assessment of what it’s actually worth, based on the condition of the home, local home sale prices and where the home is located.

The amount of rent you charge your tenants should be a percentage of your home’s market value. Typically, the rents that landlords charge fall between 0.8% and 1.1% of the home’s value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month.

If your home is worth $100,000 or less, it’s best to charge rent that’s close to 1% of your home’s value. If your house is more expensive, however, (meaning that it’s worth over $350,000) it’s a good idea to charge less rent so that you can attract more buyers. Charging rent that’s too high will make living in your house unaffordable for many people.

Other than your home’s worth, you’ll also need to consider what landlords are charging for similar rentals in your area. If the rent you want to charge is unreasonable compared to what everyone else around you is charging, you might struggle to find a tenant who’s willing to commit to your terms. A website like Trulia or Craigslist can show you how the rental rate in your head stacks up against the rates your competitors are offering.

If you’re renting out your house so you don’t have to pay for your home loan, the rent you charge has to be at least equal to the cost of your monthly mortgage bill. Don’t forget to factor in an estimate of repair costs, taxes, homeowners association fees and insurance when you’re deciding what to charge.

One other thing to keep in mind: You can’t necessarily choose whatever rental rate you want. Some states limit what landlords can charge for rent, security deposits and late fees. Rent control laws exist, for example, in places like New York, Maryland, California and Washington D.C.

How Do I Put My House up for Rent?

When you’re ready to find tenants to rent your home, you can ask a real estate agent to list your house for you. But that comes with a cost. You’ll owe your agent commission, whether that’s equal to one month’s rent, or another percentage.

If you want to publish your own real estate listing, you can upload it onto a website like Zillow for free. You can make flyers to pass out or use your social media accounts to let everyone know you’re looking for tenants.

Before you hand over the keys to your house, it’s a good idea to be sure that your prospective tenants have solid financials and can afford to keep up with their rent.

Final Word

How to determine the rental cost of a property

If you’ve chosen to rent out your house instead of selling it, you can’t charge rent solely based on the size of your mortgage payments. Picking a rental rate based on the total cost of turning your home into an investment property and on area rents can ensure you make a decent return and easily find tenants.

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