Today’s question in Questions Owners Ask is, “How much should my home rent for?”
So let’s look at some things that determine that.
Local, on the ground knowledge of what homes have rented for.
Is there a house near you that you know of that’s rented recently? Because that’s a very important data point for us to know.
Can you ask them how much they rented their house for?
This “boots on the ground” data is something that is very helpful when determining how much your home will rent for.
What homes are currently available for rent in your neighborhood?
Step 1 – Secret Tenant Shopper
One of the best ways to determine how much your house will rent for is to pretend you are a tenant looking in your area.
Much like a tenant would, determine a budget and find out what you can rent in your neighborhood for that budget.
In “tenant mode” we’ll start comparing your house to the available options. To determine which house we would rent for that budget.
For example, if I have $1,500 a month and I want to live in this neighborhood, what are my options?
Now, if I look at those houses, and those houses are better than my house, obviously I know I need to price it lower than those.
If my house is better than the available options, I’ll know I have two options:
- Price it along with the others and mine should be the next home that leases.
- Price it slightly higher and be willing to find a tenant who wants to lease a nicer home in that area.
Step 2 – Understand That It Is A Snapshot In Time
So a lot to think about but one of the things people need to remember is renting is a snapshot in time.
Unlike selling where there’s historical data. Where an agent can help determine how much to pay for a house.
Renting is very much a snapshot in time where a renter says, these are my top three priorities:
- Whether it be a school system
- An area
- A neighborhood
- The number of bedrooms and bathrooms.
Once they see a house that meets that criteria, that fits in their budget, then they’re gonna spend the money and rent the house.
Step 3 – Look at what the Zestimate say your home will rent for?
Some people think that’s crazy, the Zestimate is too low, the Zestimate is too high. What’s interesting about the Zestimate is for tenants it’s a self-fulfilling prophecy.
In other words, if the Zestimate says a house is $1,300 and we’re asking $1,800, then we’re going to have to overcome what the Zestimate says.
And a tenant will look at that and say, “Well that house is obviously overpriced because the Zestimate says it is…”
So it becomes a little bit of a self-fulfilling, self-perpetuating issue for determining what your house will rent for.
The closer you can get to what Zillow says your home will rent for, the less friction you will have to overcome to rent your house at that price.
Step 4 – Understand showings and application data
I’m not talking about calls. Calls are a dime a dozen. You’ll probably get tired of answering the calls.
Are people coming to see your house?
Let’s say people are coming to see the house but they’re not putting in applications. What they are saying to you is, “I’m willing to live in a home in this area but there’s something about the house that doesn’t meet my criteria.”
We say this home has a price or a product problem.
If I’m getting tons of people to see the house and no applications, then generally what we have is a product problem.
A tenant is willing to pay the price to live in this neighborhood, but the product that may not be market value.
Is there a product issue that we can change? If the answer is yes, then we change the issue. Types of issues like this are an ugly paint color or the home is dirty.
But if it’s nothing that I can change, then I might need to drop the price down to the actual product to start generating applications.
If it’s something I can change, obviously, we change it and then hopefully everything’s good.
What if I am getting applications?
Generally, everything’s healthy in that standpoint. Sometimes it’s just a numbers game, you got to work through the numbers to find the approved applicant.
But if you’re getting a ton of poor applications, then it may be overpriced.
It is as if unqualified applicants are saying,
“Well, this is the best bet. I’m willing to pay more to live in a product that may not be market value.”
So those are the four things I would look at when pricing your home.
This is “Questions Owners Ask.” I’m Matthew Whitaker with gkhouses.