How Much Rent Should I Charge? Setting the Right Rental Price

Published on Feb 19, 2024


Setting rental prices, where’s the sweet spot? Charge too little, and you'll leave potential rental income on the table. Charge too much, and you risk scaring away good tenants and having your investment property sit vacant.

So you aren’t the next property owner falling victim to rental pricing paralysis, together, let’s uncover how to set the perfect rental price by exploring:

  1. the key factors influencing property value,

  2. how property value affects the amount of rent you can charge,

  3. and practical steps for setting the right rent prices.

Key Factors Influencing Property Value

There’s no two ways about it: a home’s value determines rent prices. And what sets a property’s price? There are four key factors:

Location, Location, Location

The rental market hinges on where renters want to live. The most desirable neighborhoods are safe, walkable, have access to public transport, and have family-friendly amenities (parks, good schools) located nearby.

High tenant interest allows you to charge a premium rent. However, locations that lack these features face low demand, which translates to lower rents. It’s not much more complicated than that.

Market Conditions: Boom or Bust?

Hot or cold? The temperature of the rental market matters, so it’s worth keeping your finger on the pulse. In a booming market with low vacancy rates, renters compete for limited choices, and prices surge. It’s a sellers' market, and, as a property owner, you’re in the driver’s seat.

Flip the situation on its head, though, and you’re looking at a market that’s unfavorable. To attract tenants, a sluggish market flooded with vacant similar properties will force you to set more competitive prices. A buyer’s market that's a boom for them and a bust for you.

Property Size and Type: More Rooms, More Rent

The size of your rental directly influences its worth. Larger units with more bedrooms command higher rents—typically, it’s as simple as that. However, the type of property you own, even if it’s smaller, will sometimes fetch a higher price per square foot. How? Well, what renters demand in your specific market will determine what they're willing to pay. For instance:

  • Generally speaking, larger 3+ bedroom properties will fetch higher prices than a 2 bedroom equivalent. Why? Accommodating more people or providing space for a home office can drive up perceived value and, yup, the amount of rent you can ask for.

  • Sometimes, there’s a caveat to the size rule, though. In an area with lots of young professionals, prioritizing location over space and opting for smaller rentals near work or desirable nightlife, studios and 1-beds will be in fierce demand. With high demand outpacing supply, landlords can be more selective with prospective tenants and command higher prices.

The Competition Factor

Your rental property is a product. And just like they would with everything from groceries to birthday presents, tenants will window shop to find something that’s not only suitable for their needs but also affordable. Comparable properties—think units of a similar size and location—have a huge impact on your property’s rental market value. If it’s priced too high compared to similar rental options, renters will take their business elsewhere.

Learn more: should I buy a rental property?

Practical Steps to Determine Your Rent Price

Pricing factors aside, let’s get something straight—setting the ideal rent price for your property doesn’t have to be guesswork. Conduct a sound rental market analysis and start making data-driven pricing decisions that increase the profitability of your investment property.

1. Research Local Rental Rates

Smart pricing starts by knowing your competition inside and out. So begin by checking online rental listings, real estate websites, and local newspapers for similar properties. Here are three tips to help you with your research:

  1. Identify units that mirror yours as closely as possible. Think of the number of bedrooms, square footage, location, and amenities (parking, gyms, and the like).

  2. What are the average rent prices and monthly rent ranges for competitors in your market? Pay attention to vacancy rates—low vacancy rates suggest you may be able to charge a premium compared to struggling listings.

  3. Some localities have regulations or guidelines capping rent increases or establishing fair market rent levels. These restrictions will impact your pricing power.

Don't want to just set a price but secure that perfect tenant fast? Services like Ziprent excel at both sides. Our tenant screening systems and marketing reach will put your listing in front of the right renters—so you get maximum income with minimal vacancy time.

2. Analyze Current Market Trends

Rental markets aren't static. To price wisely, think like an economist and gauge the health of your local market by looking at these indicators:

  1. Go for a drive around your neighborhood. No seriously. If the area is flooded with “For Rent” signs, it signals landlords are struggling to find tenants, a sign of downward pressure on prices. Conversely, very low vacancy rates mean renters are desperate to move in, allowing you to potentially fetch a premium.

  2. Ask yourself, what brings renters to your area? Job growth? New universities or major employers? These all point to increasing tenant demand and, with it, your ability to price more confidently.

  3. Some markets see dramatic rent fluctuations depending on the time of year (think winter chalets or summer-friendly beachside locations). Recognizing these will help you price for those spikes in demand or avoid setting unrealistic prices during a seasonal lull.

Market trends put your competitors' findings from step one into context. Understanding the bigger picture gives you the flexibility to adapt your pricing as needed.

Learn more: how to calculate prorated rent.

3. Look Into Rent Control Laws

Before you get dollar signs in your eyes, remember a harsh reality of landlording: rent control exists, capping how much rent can be increased at any given time. Depending on the location, regulations vary wildly, so familiarize yourself with yours ASAP. Here's what to look for:

  1. Rent control is a local issue. Your city, county, or state could have it. Don't rely on “no nationwide law”—do your homework on what specifically applies to your rental property and read up on any restrictions that might limit your pricing freedom.

  2. Some laws apply only to older units or have complex exemptions. Don't just assume a hard rent cap is in place—digging into regulations can sometimes reveal unexpected wiggle room for price increases.

  3. Even areas allowing small annual rent increases often have stringent requirements for notifying tenants. Non-compliance leads to legal woes, so factor potential admin costs into your overall profit estimates.

If you neglect rent control regulations, you risk hefty fines or even eviction lawsuits. Do your research now to set expectations and protect your investment property.

4. Calculate Operating Expenses

Many new landlords focus on their monthly mortgage payments and property taxes alone. But seemingly small expenses are a death-by-a-thousand paper cuts-type scenario just waiting to happen. Don’t ignore anything, calculate everything, including:

  1. Plumbing leaks, faulty appliances, roof repairs—unexpected maintenance costs happen. Budget for them, or your “profit” fund won't exist for long.

  2. Uncle Sam doesn't forget landlords, and accidents happen. Factoring these non-negotiable expenses into your rent decision is vital.

  3. Homeowners Association (HOA) monthly fees, if applicable, may appear “minor,” but they can quickly add up—don't forget this when crunching your numbers.

  4. Are some utilities included in the rent? Account for any that you, as the property owner, have to cover.

Learn more: 10 ways to reduce rental property costs.

5. Evaluate Property Amenities and Features

Okay, it’s time for an honest inventory. What makes your property more appealing than the competition? Don't just think square footage—analyze the amenities and features that make renters go, "Ooh, I want that!" Consider including:

  1. Granite countertops, stainless steel appliances, and fresh paint make a huge difference. Even small touches can bump up your rental value.

  2. A patio, balcony, or even a small yard space can impact prices in certain markets—highlight these in your listings.

  3. Is laundry in-unit? How about fast internet access or a smart thermostat? Features renters see as desirable are worth charging more for.

  4. Location, Location... Again! Proximity to transit routes, popular entertainment, or top-rated schools allows for a bump in that monthly rent.

Just remember to be realistic about what tenants in your market truly value. While a swimming pool looks great on paper, the upkeep (and liability) costs may outweigh the price increase it nets you.

6. Consider Seasonality

The rental market has its own seasons, and ignoring them can be financially costly. Think strategically by looking out for these swings:

  1. In college towns, rents often peak right before the semester starts and plummet during breaks. Know the rhythm to capitalize on high-demand periods

  2. Snowbird flocks or vacation hotspots will see wild demand shifts throughout the year. Price competitively when it's hot (market-wise) to make up for lulls later on.

  3. Recognizing the “off-season” should be right up your alley. Don't stubbornly hold rates high if everything around you is dropping: a short-term decrease on a lease may prove better than months of vacancy

Keep in mind that some areas remain remarkably stable. Don't assume seasonality impacts you without first confirming with the data gathered in step 1.

7. Use Rent Estimate Tools

Calculating rent. It’s enough to make your head spin. That’s why Ziprent offers a free market analysis service. Simply head to our Get Started page, plug in your address, and voilà. Our team will contact you and get the process started for your free Market Analysis.

Quick Estimates

Need a quick idea? You could run the numbers using the 1 percent and 2 percent rule of thumb. Here’s how it works:

  • 1 percent rule: To break even, monthly rent should be at least 1 percent of the property’s purchase price.

  • 2 percent rule: To make a sustainable profit, monthly rent should be at least 2 percent of the property’s purchase price.

Caveat—the 1 and 2 percent rules are rough guidelines, not foolproof formulas. Market conditions can skew the results. For a reliable, data-driven rental rate calculation, jump over to our guide on How to Calculate Your Rental Rate. Or, ditch the guesswork with Ziprent’s free market analysis.

8. Make Periodic Adjustments and Increases

Rent set once and forever? A landlord fantasy, for sure. Unfortunately, managing sticking points like rental prices isn’t typically that easy. No, landlording means being prepared to revisit those numbers and make adjustments when necessary.

  1. Revisit competitor data at least annually. Is your price too low compared to similar units? If needed, adjust. Don't leave money on the table.

  2. Did you invest in renovations? Those often justify a rent increase. However, be realistic—new paint sadly won't get you as much as a kitchen remodel.

  3. Costs go up for everyone during inflationary periods. Annual small increases protect your profits from getting “eaten” by rising expenses. Always research local price indexes for justification.

  4. A huge overnight rental jump? That's the fast track to vacancy. Small but regular adjustments prevent sudden loss of profitability and disruptive tenant changes.

  5. As we discussed, state and local ordinances sometimes control the frequency and amount of increases. Don't accidentally become the “greedy landlord”—protect yourself legally.

Stagnant rent won't cover escalating costs or maximize your investment potential. Get comfortable with revisiting the price, but do it responsibly.

Learn more: how to manage properties as a first-time landlord.

Bottom Line: Making Sure Your Rental Property Starts Turning Profit

Whew, that was a lot! But if you followed along, you're leagues ahead of most rookie landlords who just wing it on pricing.

Ready for less headache and more profit?

At Ziprent, we believe property management shouldn't cause stress. From market analysis that drives optimal pricing to finding those perfect tenants quickly, we handle the “heavy lifting” of maximizing rental unit income.

Hand things over to our property concierge team and discover how Ziprent delivers those landlord profits you've worked so hard to achieve.

Ready to get started?

Get immediate access to your property dashboard.