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  • Writer's pictureAJ Shepard

Optimizing Your Rental Price for Maximum Income

Updated: Jun 26, 2020

Optimizing Your Rental Price for Maximum Income

Are you asking the absolute best price for rent? Or, are you asking for a price that is too high and causing unwarranted vacancy? Most of everyone's goal with their income-producing rental property is to earn the most income possible. This is a fantastic goal. However, there is a two-edged dynamic to this question - over AND underpricing. Neither scenario is optimal. When choosing a rental price for your rental property, there are several considerations to take into account. These considerations are competition, your goal with the property, costs/expenses and attracting quality tenants. To price a property to earn the most income, an investor must consider which properties they will be competing against within their hyper-local market. An investor must also take into account their goal or strategy with the subject property. With those factors being stated, the investor must also think about the prospect of living in their property from the perspective of the tenant. Quality tenants – tenants with a good income, good credit scores, and good histories – have options. On the other hand, tenants who are less than desirable, do not have options. Thus, these prospective tenants are more desperate and will lie and cheat the system in order to get into your property.

Competition. You will be competing with other rental properties in your hyper-local market. Hyper-local is usually designated to properties in the same neighborhood, or are within a .2 mile radius of your property. This is hands down the most important factor when choosing and setting a price for your rental property. When neglected, your property can act as an anchor to help other properties lease-up before yours. You should choose 2 or 3 properties that are currently being marketed for rent to base your rental price upon. These comparable properties should be similar in the number of bedrooms, bathrooms, square footage, and amenities. After choosing these properties it is best practice to price your rental property just below the current market rent in order to entice and persuade quality tenants (prospective tenants with options) that your property is the best value for them.

It is vital to keep an eye on your hyper-local market over the duration of the lease-up period. Tracking your property in comparison to its direct competitors will help you make corrections to the price in order to reduce vacancy. It is advised to drive through the area in which your property is located and see what the competing properties look and feel like. This will give you an empirical edge when choosing a price.

Attracting quality tenants cannot be overstated. Investors dream of tenants that are responsible, timely, and conscientious. These types of tenants do indeed exist; however, they need to feel that they are getting the best value at the time in which they are looking for a new place to call home. Traditionally, this means pricing your property just below current market rents. Although this appears to decrease the amount of income an investor earns from their property, it is actually the most profitable strategy to use. The reason this is the most profitable strategy is based on the behaviors that come along with quality tenants. Quality tenants pay rent on time, alert you when there are issues with the property in order to isolate issues that can have pernicious effects, and do not potentially disturb other tenants. Finding and keeping quality tenants is a tried and true strategy for optimizing your rental income.

In summary, it is important to understand your hyper-local market and analyze competing properties and continue to keep an eye on the market for new competing properties. Staying ahead of the market by pricing your rental property just below market rents is a good strategy for attracting quality tenants who are responsible, timely and non-disruptive.



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