If you want to diversify your investment portfolio with a rental property, you must make sure that you generate enough income to cover your overhead expenses. With every rental property slightly different, and each local rental market slightly different as well, how can you figure out how much rent to charge?
There are a few factors to consider.
Use The Value Of Your Home
An easy way to figure this out is to use the value of your home. The vast majority of rental property owners start by charging a monthly rate equal to 0.8 to 1.2 percent of the value of the home. For example, if your rental property is worth $300,000, then your monthly rent should be around $3,000. What you can charge for rent will depend on demand in your local area, but this is a solid starting point. Regardless of whether you have long-term renters or vacation renters, this is the number you would shoot for.
Calculate Your Overhead Expenses
If you want to dive into the details to make sure you are charging enough money, you can calculate your overhead expenses. If you have a mortgage, you must make enough money to cover your mortgage, home insurance, and real estate taxes. You might also have to pay your utilities and HOA fees, depending on how you structure your contract with your renters. Don’t forget that you might also have to pay utilities and trash collection fees, depending on where the property is located. Finally, you must turn enough of a profit to cover potential maintenance expenses as well. This might include emergency repairs involving the roof, hot water heater, and electrical system.
Consider Working With A Professional Who Can Help You
Because there are a lot of factors involved, you need to think carefully about how much rent you should charge. Every rental market is different, but you need to make enough money in rent to cover your overhead expenses. If you are having a difficult time figuring out how much rent to charge, you might want to reach out to a local expert who can help you do the math.
