Owning rental property is a good way to build wealth - but only if you are able to make money doing it. Read on for more tips on how to set your rent right before your first tenant moves in.
Before you rent out a home for the first time, you need to set the proper rent to ensure that you can afford all your bills associated with owning rental property. There are many things to consider when you are choosing the right price for your apartment or house. Here are five things you need to consider when choosing the amount of rent you will charge.
Before you even purchase a rental home, you need to research your area and find out what other landlords are renting similar homes for. This will determine the maximum amount of rent you will be able to charge – unless your home offers some unique benefit that is not found any where else.
Real Estate Taxes and Insurance
You need to find out what your real estate taxes and insurance will cost each year. You can get your insurance premium estimate from your insurance agent. Your local property tax collector can give you insight as to how much property tax you will need to pay. Divide this amount by 12. This is the portion of your monthly rent that will go to pay real estate and insurance charges.
If you are lucky enough to own a home outright or can purchase a rent home cash, you will have an easy time setting your minimum monthly rent. If you had to take out a loan on the property you need to consider the amount of your payment each month.
If you are going to offer special amenities such as paid cable, phone, utilities, or alarm service, you will need to figure in the monthly cost of these amenities while you figure up the amount of rent you will have to charge. If you are currently occupying the home you plan to rent, add 15-20% to your utility figure when making this estimate. Tenants are not cognizant of the utilities they use if they do not have to pay the bill.
Repairs and Maintenance
Take a good look at your house. If you know it is going to need major repairs within the next few years, figure in a couple hundred dollars each month in to the cost of your rent. In addition, plan on spending on average $50-$100 monthly for maintenance. Although you will not have to actually pay anything out each month, over the course of the year your monthly average should be in this range.
Now that you know how much cash you can expect to outlay each month, try to set your rent $100 above that figure – more if you don’t have a mortgage. When you try to figure out if renting out a property is worth it, consider the fact that the tenant is paying the principal on the mortgage and sustaining the house. You will also enjoy several tax benefits.