How to set rent for your rental property

Setting the right rent is one of the most important decisions you'll make as a landlord. Price too high and your property sits vacant. Price too low and you're losing money every single month for the life of the lease. Getting it right takes a bit of research, but it's not complicated.

Step 1: find comparable rentals

Before anything else, you need to know what similar properties in your area are renting for. This is where rental comps come in. You're looking for properties that are close to yours in terms of location, size, bedrooms, bathrooms, and property type.

Pull 5 to 10 comps if you can. Look at both active listings (what's on the market right now) and recently rented properties (what actually leased). Active listings tell you what landlords are asking. Recently rented properties tell you what tenants are actually paying. Both are useful, but the rented comps are more reliable.

Once you have your comps, look for where the rents cluster. If most of them fall between $1,800 and $2,100, that's your ballpark. You'll refine from there.

Step 2: check fair market rent

Fair market rent (FMR) is a number published by HUD every year. It gives you a baseline for what a standard rental goes for in your area. It's especially relevant if you're considering Section 8 tenants, because the voucher payment amount is directly tied to FMR.

Even if you're not renting to voucher holders, FMR is a useful gut check. If the FMR for a 3-bedroom in your area is $1,800 and your comps show $2,400, you know you're in a market where rents have pulled significantly above the government baseline. If the numbers are close, the market is more stable.

Step 3: adjust for your property's strengths and weaknesses

Comps give you the range. Now you need to figure out where your property falls within it. Be honest with yourself here.

Things that let you price higher:

• Recently updated kitchen or bathrooms
• In-unit washer and dryer
• Garage or off-street parking
• Fenced yard (especially in family-heavy markets)
• Better school district than nearby comps
• Walkability to restaurants, shops, transit

Things that push you toward the lower end:

• Dated finishes or older appliances
• No central AC (in warm-weather markets)
• Street parking only
• Busy road or less desirable location within the neighborhood
• Smaller lot or no outdoor space

There's no exact formula for this. A renovated kitchen might add $100 to $200/month over a dated one, depending on the market. In-unit laundry might add $50 to $150. Use your comps as context. If a comp with a similar layout but a nicer kitchen rents for $200 more than the others, that gives you a sense of what that upgrade is worth.

Step 4: read the current market

Rental markets are seasonal. In most parts of the country, demand is highest from May through August (when people move) and slowest in November through January. If you're listing in peak season, you can price toward the top of your range. If you're listing in the winter, you might need to be more competitive.

Also look at how much inventory is on the market. If there are 30 similar rentals available in your zip code, tenants have a lot of options and you'll need to be competitive. If there are only 3, you have more pricing power.

Days on market is another useful indicator. If similar properties are renting within a week of listing, the market is hot and you can be more aggressive with pricing. If they're sitting for 30 to 45 days, the market is softer.

Step 5: price it right

The mistake most landlords make: overpricing doesn't just cost you a slightly lower rent. It costs you vacancy.

Let's say your property could rent for $2,400/month. You decide to list it at $2,600 because you want to "see what happens." It sits for 6 weeks before you drop the price to $2,400 and it rents.

That 6 weeks of vacancy cost you $3,600 in lost rent. And you ended up at the same price anyway. Pricing right from the start would have put an extra $3,600 in your pocket over the course of the year.

The sweet spot is at or just slightly below market rate. It pulls in interest fast and gives you a stack of applications to pick from. A property that gets multiple apps in the first week is almost always priced well.

When to raise rent

Once you have a tenant in place, you'll eventually need to decide whether to raise rent at renewal time. Here's a simple framework:

Pull fresh comps every year when your lease is up for renewal. If the market has moved up and your rent is now below comparable properties, a modest increase is reasonable. Most tenants expect small annual increases. A bump of 3% to 5% in a market that's grown by that amount is standard and rarely causes turnover.

If you have a great tenant, be conservative with increases. Turnover is expensive once you add up vacancy, cleaning, repairs, and re-leasing costs. Losing a good tenant over a $50/month bump rarely pencils out.

On the flip side, if your rent has fallen significantly below market (say 15% or more), a larger increase is justified. Just give your tenant plenty of notice and be transparent about why.

Using PropMetrics to price your rental

PropMetrics runs this whole process from one search. Type an address and you get a rent estimate with a low/mid/high range, a list of nearby comps with similarity scores, price-per-sqft, and HUD fair market rent for the area. You can see exactly where the property sits in the market and price accordingly.

Same research process described in this guide. Just automated. Seconds instead of an evening.