Understanding how much your home may rent for is a key step in determining whether it makes sense as a rental. But there’s more that goes into rental pricing than most think. And because it’s so in depth we see rental pricing all over the place. Some homes are wildly underpriced, some are wildly overpriced, and most sit somewhere in the middle. Here’s one strategy on rental home pricing.

Look at properties in your area on Zillow

Zillow is a common rental platform and will help give you an idea of what your home may be worth. Look at your neighborhood and see if there’s any rentals currently available. Review the photos for each of the homes. How do the size, beds and baths compare to your home. Are the finishes nicer or more basic than yours? Is the landscaping similar? What’s the pet policy? These can be indicators on what your home may rent for.

The Benefit of Using a [good] Property Manager

Looking at active listings is a great first step in providing a price recommendation for your home. However, a good property manager will dig deeper than just the preliminary steps of looking at available homes in your neighborhood. They should also understand the days on market and activity. Based on their local knowledge of what’s common for market-rate homes during that time of year they can determine whether each home’s underpriced, at market, or overpriced. This is a critical step, especially in Idaho.

One of the key things to understand with rentals in Idaho is there’s no MLS. The number you’re seeing is equivalent to a home’s asking price- not the price it will ultimately rent at. That’s why a keen understanding of the activity and whether it’s at, under, or overpriced is so critical. You could be using a comparable and price your rental at one amount, only to realize that comparable has been on the market 4 months with no activity. It’s overpriced, sitting vacant and now your home is too.

A thorough understanding of currently listed rentals, and where they sit relative to the market is key to providing a strong rental price recommendation.

Review Past Listings

Many property managers offer free rental analysis, but the effort and what’s in the analysis can vary dramatically. In most cases, you get an automated report from a software company. It will take your home’s address and other data points like beds, bath, square footage, and age and compare it to the average homes in your area that have leased in the recent past. It assumes your home’s condition is similar to the average home in your area.

We pull these reports too, but only as a starting place for our own analysis. We’ve found that while these reports can provide some helpful comparables, usually about half of the comparables don’t meet our criteria of what a true comparable property would be. They don’t account for important considerations.

Assume most of the homes in your area were built in the 1990’s, same as your home. However, many of the recent rentals have not been updated. You, on the other hand, have done a complete kitchen remodel, added a large covered back patio, and updated the bathrooms. In this case the comparables, though built in a similar year, are not actually a strong price comparable to your home because your home is not a like property. Similarly, if your home is a view property the software likely won’t account for that premium in its analysis.

This is why we use it as a starting place, but it’s not the finish line.

Macro Tends

If you’re working with an experienced property manager, they probably have a hunch of what the market is doing. If you work with Iron Creek, we use data. We track days on market, number of new listings, and median prices as an indicator of whether the market is getting stronger or softer. If the numbers indicate the market’s getting stronger, then we may recommend a higher price point. Conversely, if the market’s getting softer, we may recommend pricing slightly below comparables in order to reduce days vacant.

Don’t forget timing

One of the hardest things to remember about pricing is that it’s based on today. If your house isn’t ready to list for rent for 3 or 6 months, the price will probably change between now and then.

In Boise, there’s seasonality to account for. Or maybe something significant will happen to the economy between your price analysis and when you put it on the market. The fact is none of us have a crystal ball. That’s why we do a full rental analysis again in the days just proceeding a listing going live. That way we can provide owners the best information based on the current market, not what existed months before.

Can’t I base it on my costs?

It’s not uncommon for owners to come up with a rental price based on their cost.

My mortgage is $2500, HOA is $100, insurance is $100, and the property manager will cost $250/month. That puts me at $2950 plus I want to make some money off it, so I want to price it at $3300.

That’s not market rent. $2950 is your cost (it’s likely higher than that if you include maintenance). But your costs do not dictate the market.

Market conditions dictate the market.

The amount tenants are willing to rent for, and the amount owners are willing to have their properties rented for, is the market rate.

You can choose to list your home at any price you want. But if it’s above market rate it’s probably not going to get rented. It will sit vacant until either the market comes up to meet it, or you drop the price to meet the market.

It’s also important to note this can go the other way to and result in your home being significantly underpriced. Say you bought the home 20 years ago. Your mortgage is $900/month, no HOA, insurance is $100 and a property manager is $200. That’s $1300. You’ve heard rent prices are going up, so you decide to price it at $1800! If market rate is $2200, you’re missing out on thousands each year.

Finding the right number

There’s much more that goes into pricing a rental than most people consider. Not only do you need to look at the current market, you have to weigh those comparables based on which are at market, compared to those under or above. Because there may not be many active to compare against, you’ll want to look at recent rentals and understand what implications those numbers have. You also have to understand where you’re at in the market trends, seasonality, and whether things are expanding or contracting. Once you have all that, you need to bring it all together into a price.

Or you can call Iron Creek and we will do it all for you.

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