One of the most frequently asked questions from our investors is, “What should we charge for rent?” A popular question as this one of the most important drivers of their return on their investment. As simple as the question is, it’s not always a simple answer.
First, we want to establish goals for that property. It’s important to know what the investor's ultimate goal is, whether the investor is investing for the cashflow, the speculative appreciation, claiming your dream home, and/or leveraging real estate investments as a tax write-off against other income. Investors might also want to attain a certain market capitalization rate, or a certain percentage of purchase price. Once we find the goal, we work backwards. After running the numbers based on the investor’s goal, Peak will input the data in our rent analysis systems. Since these systems only consider square footage, bedrooms, bathrooms, and location, this is only a starting point.
After getting the foundation laid, our team manually researches various rental sites to analyze what is on the market, how long it has been listed, and what neighborhoods these rentals are in. In Richmond in particular, the block or neighborhood the rental is located in will make a huge difference! It’s important to be very familiar with the city and the neighborhoods, specifically. Comparable studies like these are important. We'll want to go lower than a comparable units that have been on the market for a long time. On the same token, we may want to go higher than units that are not as nice in quality and are renting quickly.
One of the final factors is time. How much time do we have before it is vacant, or until it is rent ready if not currently filled? Vacancy is the number one factor in rental investing that kills profits. To date, Peak has an occupancy rating of 98.6% for this reason. If we have some time, we may set the rent at a high market average to protect the owner and be fair to our tenants, and we can then gauge interest level. With less time, it’s safer to go a more conservative route. In most cases, lowering rent $50-$100 is much more efficient and profitable on an annual basis than having a unit vacant for a month or two.
This is something we focus on heavily when working with new properties to fall into the sweet spot of getting a great return for our investors in addition to having happily placed tenants. When working with a property manager, be sure that you are getting the individual attention, and returns, that you deserve.
Stephen Glover
