One of your earliest and most important decisions as a rental property owner will be pricing your property. You want to ensure that you set the price high enough that it’s profitable for you, but you also want to remain competitive. If you price it too high for what the market will demand, you’ll be left with no interested tenants and a vacant investment that’s losing money.
It can be challenging to get the pricing just right, and there are several factors that need to be considered when you’re setting an accurate rental price for your investment property. From evaluating the current housing market to consulting with experienced professionals, understanding where your price should land is essential to having a successful rental experience.
As property managers in Phoenix and throughout the East Valley, we have a lot of experience pricing rental homes. We have access to reliable and accurate data, and we know what the best qualified tenants are willing to pay for certain locations, amenities, and features.
These are the most important factors to consider when you’re setting rental prices for your investment properties. There are always exceptions to every rule, but if you’re focused on these specifics, you’ll find that you’re able to set an accurate and competitive rental price that still allows you maximize what you earn.
Analyze the Local Rental Market
Your rental price will always begin with the local rental market. This is where you start, whether you’re renting out a single-family home in a planned development or an apartment unit in a multi-family building. The market drives the starting price.
Maybe your rental home is the most beautiful property on your street. Maybe you paid half a million dollars for it and you need a high rent to meet your mortgage payments.
Neither of those things matter more than the strength and the demand of the rental market.
You can’t price the property based on what you need to earn in order to generate positive cash flow. You can’t even price the property based on what you think or feel it’s worth. You have to look at what similar properties are renting for.
The market is the main factor in pricing.
Investigate competing properties. Get to know how much inventory is available and what kind of demand is present from tenants in the market. Access accurate and up-to-the-minute data that tells you what similar homes in your neighborhood are renting for at the time and how long it takes for those properties to rent.
Economic factors will always impact the rental market. So, make sure you’re also considering the strength of the local economy. Are jobs widely available in the immediate area? Is business moving into the East Valley? High rents won’t work when unemployment is high and work is hard to find. In our current period of high inflation and relatively stable employment, rents can climb a bit higher. You have to know what kind of economic conditions you’re working with. You need to know whether the metro area is growing in population or losing its residents.
Recently, home values have gone up and so have rents. That allows you to ask a bit more than you likely were a year or two ago.
The local economy always has more bearing on your rental value than the national or global economy. This is a market-driven conversation, especially when we’re talking about rent prices.
Location and Rental Property Pricing
We have established that the market is the main driver of your rental price, but that’s not the only thing that has an impact on what you can charge.
As you’re establishing a rental value, you’ll also want to consider what makes your property unique.
Location is going to raise or lower your rental value.
Everyone knows that location matters in real estate. When you want to charge a higher rent, you’ll need a property that’s well-located. That property needs to be in an excellent school district. It should be close to schools, restaurants, shopping, conveniences such as grocery stores, and entertainment. Some tenants look for walkable neighborhoods and others want a gated community so they feel safer. All of these things will contribute to a higher rental value.
When your property is not in a great area, you’ll have to bring your price down a bit. Maybe the rental home is more remote, or in an area where parking is impossible or traffic comes to a complete standstill during rush hour. That’s going to deliver a smaller pool of tenants who are interested in living there. You’ll have to attract good residents in other ways - such as a lower price.
There’s not much you can do about your location. Your property is where it is. However, this is something you can think about when you’re looking for your next investment. If you’re considering a new rental property, make sure it’s in a desirable location that is likely to increase what you earn in rent every month.
Phoenix Rental Property Condition and Pricing
This is where you, as the property owner, can most effectively impact your rental value. Obviously, there’s nothing you can do about your property location. There’s also not a lot you can do to change the economic outlook or the strength of the market. You can’t decrease the competition or increase the demand.
You can always control how well your investment is maintained, and you can always control your property’s condition. It’s your best chance at raising your rental value.
The right rent will reflect what you have to offer.
A modern, functional Phoenix rental property that is attractive and welcoming and clearly move-in ready will invite well-qualified tenants and earn you a much higher rent than a property which doesn’t show well because it’s deteriorating, looking worn, or dirty.
You’ll earn more when you are willing to provide a home that tenants are eager to rent.
You don’t want to spend too much on renovations, of course. However, you can make some cost-effective updates that will deliver a big difference, especially when it comes to rental value, tenant quality, and reducing vacancy days.
Try some of these tricks and tips to improving the condition of your rental property:
- Give the walls a fresh coat of paint. High quality paint costs more than it once did, but this is still an easy and efficient upgrade that gives your home a great look and a modern feel. Before you list and price your property, make sure the inside gets a fresh coat of paint. Instead of touch-up work, paint entire walls. Keep the colors neutral.
- Install updated appliances that match. You don’t have to invest in stainless steel, but you do want all of your kitchen appliances to be working, clean, and not 30 years old. They should run reliably and be energy efficient as well. This will increase your rental value and save on energy costs.
- Improved flooring. If you must have carpet, make sure it’s fresh and free of stains, wear, and holes. Consider hard surface flooring such as vinyl or laminate in common areas. Tenants will appreciate that there’s less maintenance involved, and it’s easier to keep clean. Homes with hard surface flooring often rent for more than homes with carpet.
- Clean, low-maintenance landscaping that creates a great sense of curb appeal.
Don’t put off any repairs. Make them before you price your property so you can maximize the value of those renovations. It’s also important not to over-improve your property. Granite counters and garden tubs are lovely, but they’re also unnecessary unless your competition is also providing them.
Setting the Right Renewal Price
When we think about pricing a property, we immediately think about the price we attach to the home when you’re getting ready to rent it out. While it’s true, you’re most typically setting rents when your property is vacant and you’re looking for a tenant, there’s also another pricing opportunity to consider: renewals. You’re establishing a refreshed rental value every time it’s time to renew a lease agreement.
You have to be strategic, and you want to remain competitive.
If you’ve provided an outstanding rental experience for your tenants, they’re likely willing to renew their lease agreement. One way to ensure they stay in place and renew their lease is by keeping your rental increase reasonable.
Every tenant expects their rent to go up from year to year. But, you don’t have to chase away your good tenants with large increases. Make a modest increase, and explain to them why the rent is going up. Share some market data that shows what average rents are in Phoenix and the surrounding areas.
Losing a good tenant is more expensive than keeping rent increases reasonable. It’s worth it, and your tenants will appreciate it.
If you’d like to talk about pricing and what your home should rent for, please contact us at TCT Property Management Services. We manage homes in the East Valley, including Mesa, Gilbert, Chandler, Scottsdale, and Phoenix.