much should you charge for home rental?
Real Estate Adviser,
We are considering renting out our home for one year. Is there a
good formula to figure out exactly how much to charge for rent to
make it worth our while?
A good rule of thumb, according to landlord and
rental research, is to charge no less than 1.1 percent of the home's
value up to about $100,000 ($1,100), 1 percent up to about $125,000
($1,250), and a slightly smaller percentage as you climb the home-value
For example, homes valued at $150,000 to $175,000
usually would rent for 0.9 percent of value (150,000 x 0.009) or
$1,350 to $1,575, while you'd only get, at an average, about 0.75
percent ($3,000) for a $400,000 home (400,000 x 0.0075).
Why the sliding scale? It's harder to rent the higher-priced
homes for 1 percent or more of value because the renter universe
diminishes substantially as price points increase.
Of course, the rent you can charge depends heavily
on local rental-property demand, the economy, the health of your
local housing market, plus the location and condition of your house.
Optimally, you'd get a 1.25 percent return each month in a very
Be wary, though. Anything less than 0.8 percent (0.008)
gives you no buffer in the event of abrupt move-outs, vandalism,
rises in interest rates and other negative scenarios. As you can
see, with such small profit margins, there's little margin for error
in the renting-a-house game.
Before you set your rate, scour the market well for
comparable rental houses, looking in the newspaper, in local rental
guides and checking online listings to see what other landlords
are asking. Call the phone numbers listed for those rental homes
in your area a few weeks after they were first listed, and see if
they have been rented yet. If they rented too quickly, it may mean
they were too cheap. If they're languishing on the market, it may
mean rents are too high. It's a delicate balancing act, as you can
In a healthy market, you can afford to start a little
high on price and then come down if need be. (You might even enlist
a Realtor for help with pricing.)
There are numerous other considerations, such as the
credit and employment checks for prospective tenants, damage or
security deposits, pet deposits, etc. For a more thorough rundown,
see Bankrate's own stories on the subject, including "Rookie
landlords face big challenges" and "7
questions for would-be landlords."
Ideally, you should lease to a tenant you know and
trust, though that's not always possible. But regardless, make sure
you are upfront that the house will only be available for a year.
There are also numerous tax
implications, for which you may want to consult a financial
adviser, and liability insurance issues to research as well.
I hope you'll make it through that one year
unscathed. Good luck.
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