How To Calculate Rent Estimates In 6 Steps

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Rent Estimates

In 2021, around 44 million houses in the United States were leased to tenants. A good part of those homes was occupied in 2018 when the Census Bureau only counted around 20 million homes. People prefer to rent than to buy, which is why investment property has become such a success.

Considering we rent so much, you would think we would have rent estimates down to a science. That being said, people who own a second house (and are not investors) may have difficulty calculating the appropriate rent estimates. Here are the main steps to ensure you get those calculations right.

  1. Consider Your Expenses

Very often, landlords will use only the 1% rule to determine how much to charge for rent. That being said, many other factors can determine the appropriate price for the rent. The worth of your property and the demand can give you an idea, but that would be far from enough.

Before setting the rent, list the expenses that you have to cover. This can include mortgages, costs for property management, insurance, taxes, and many more. To make things easier for you, you might want to take this data and put it in a rent value estimator. This will ensure you don’t miss crucial payments and accidentally undercharge.

  1. Evaluate The Neighborhood

The first step in calculating rent estimates is to research the neighborhood. Does the area have ease of transportation? What is the perceived safety? Can you easily access areas such as shopping centers or dining spaces? How close is it to schools and business centers?

Usually, the closer it is to the city center, the higher you can set the rent. At the same time, you need to consider the growth potential. An up-and-rising residential neighborhood can have higher estimates as time passes.

  1. Go Through Rental Listing Comps

To get a good rent estimate, you must review the rental listing comps net. Look at the available units for rent and see how they compare to yours. What are their sizes? How many square feet do they have? What about the amenities?

You might want to learn the real estate value of your property in comparison to other homes. If your house has a lower value compared to other properties, it doesn’t make sense to ask for a higher price, and this would scare potential tenants and send them straight to other property owners.

  1. Apply The 1% Rule

Now that you know the value of your property, you should consider using the 1% rule. This step is particularly useful for those renting out their former home. At this point, you should already know how much your home is worth. It wouldn’t hurt to get a second opinion from a real estate agent.

With this rule, you set the rent of your property as anything between 0.8% and 1.1% of its total value. For example, if your house is worth $300,000 on the market, then you may charge from $2,400 to $3,300 for the rent. The value of the property, along with its amenities, may affect exactly how much you can get.

  1. Consider The Demand

When calculating rent estimates, you also need to consider the demand in the area. This factor could drastically change the value of your property, for better or worse. For example, demand will be much higher for rentals during bad financial times, as very few people can afford to buy.

For the most part, if the demand is low, you need to lower the rent as well, which will help attract potential tenants. On the other hand, if the demand is high, then you may get away with charging a higher price for your rent.

  1. List Out Rent-Boosting Features

As you know, the amenities that you have on your property can significantly affect the final rental value of your property. That being said, some amenities can boost your property value more than others. These amenities can include a swimming pool, a dishwasher, a washer/dryer, and on-site parking.

Bear in mind that some rent-boosting features can increase maintenance problems. For example, some landlords do not want to install garbage disposals, and they often break or get clogged, adding extra maintenance expenses.

Pay close attention to these amenities and their effects, especially when other similar properties around don’t have them. Depending on the number of extra amenities and their value, you can increase the rent by anything from 3% to 15%.

The Bottom Line

Calculating rent estimates is not a walk in the park, but there are tools to help you. Once you know your home’s worth and expenses, you will have an idea of the average prices, making it easier to narrow down the price. Follow your instinct, especially when you believe the demand will increase.

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Himanshu Shah is the chief marketing officer at MyDecorative.Com, and he is also a young enthusiastic writer who is gumptious and talented. He has sound analytical and technical skills. He is a blogger, Digital Marketing Expert who likes to write on home decor.

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