HOW MUCH SHOULD I CHARGE FOR RENT?

The day has come: you have completed your development project, or renovation, or simply bought a rental property that’s vacant. You’re tired of spending, and now it is time for solid cash flow! This is definitely exciting, but how do you determine the amount of rent to charge your tenants? Is it $625? $1475? $2395? Ironically, it is equally bad charging too little or asking too much for the property. Whether the property  is being rented by yourself or property management company, you still need to know the market rents. The reason is simple: the property’s rental income affects your property’s market value, and return on investment.

Example:  You increased rents by $25/month (or 2% on $1300/month) on average per unit on a 12-unit building.

Example: You increased rents by $0.50 per square foot (psf) (or 2% on $25 psf gross rent) on a 3500-square foot commercial space.

Assuming your property’s operating expenses haven’t changed, you’ve increased your property’s value as follows:

12-unit residential building 10,000 sqft commercial space
$25 / month x 12 units = $300 / month increase $0.50 psf x 10,000 square foot space
$300 / month x 12 months = $3,600 / year $5000 / year increase in rental income
Net Operating Income Increased by: $3,600 / year Net Operating Income Increased by: $5000
At a 5% cap rate, your investment property market value has increased by $72,000! ($3,600/5%) At a 6% cap rate, your investment property market value has increased by $83,333! ($5000 /6%)

*If you rent out a condo, townhouse, home up to fourplex, your property’s value is not solely based on rents, but more on comparable sale price.

Do you know how drastic a 2% increase in rents can have on your real estate investment’s value? Now, how do you determine the right rent that will attract quality tenants, while maximizing your cash flow and minimize the vacancy of your investment property? Property Rental Market Analysis determines your exact rent, by comparing your property against what else is available to rent now, and your property’s online visibility. The property market analysis reveals the target rent for the property. After the market analysis, you will know exactly how much your property can be rented out for. However, if your property is not advertised strategically, it won’t rent at any price. The property market analysis is a time-consuming systematic process that looks at several variables. Some of them are:

 

  • Current real estate market & trends.
  • Neighbouthood amenities and features.
  • Average rent, and price range of 25+ rental properties in your neighbouthood.
  • Public transit and infrastructure.
  • Amenities of your rental property.
  • Condition of the property.
  • Timing of the year.

Here are 2 out of 9 resource we use to determine the target rent for a residential property, and a commercial property.

A great way to know if you’re advertising at the target rent is getting 1-2 quality tenant inquiries for each 100 views of your listing. If you have 120+ views and no leads something is wrong (price, text, picture, exposure).  For action taker! Send us an email at:  info@buildinginvestments.ca and we’ll send you the other 7 relevant resources we use to determine a property’s rental market rents.