How to Calculate Rent when Investing

Determining the right price for your rental property has always been a challenge, dating back to the earliest days of landlording. Before the advent of the internet and modern technology, investors would drive around in search of 'for rent' signs, jotting down rental prices by hand.

Fast forward to today, and the process of setting rental rates has evolved dramatically.

While actively listed properties can provide a general idea of rental ranges, only those that have actually leased within the past 12 months (ideally within 3-4) will give you an accurate reflection of current market conditions. Comparables should be within a half-mile of your property, and neighborhood-specific data is even more valuable. Working with a trusted, investor-friendly real estate agent can help you determine accurate rental rates. 

Once you've narrowed your search to properties in your area, the next step is ensuring they are truly comparable. For example, a five-bedroom house remodeled in 2024 on a 10,000-square-foot lot isn't comparable to a two-bedroom townhouse remodelde in 2012, even if they’re located across the street. Selecting at least three similar properties will help you estimate the current market rent with confidence.

You should also consider varying vacancy rates and rental demand in each area. For instance, rent may have declined in one area over the past five years but stabilized in the last year. In another market, rent may be rising rapidly due to the construction of a major distribution center. Scranton, PA for example, has over 15 different neighborhoods that all vary in what they capture in rent.

Additionally, each market has different management and maintenance costs, which should be part of your due diligence. Understanding these market nuances is crucial to making informed investment decisions and thriving as a landlord.

Research Rent Control Laws

Rent control laws differ by state, so it’s crucial to consider local regulations when setting your rental price. Luckily in our area, we don't have any major rent control laws in place at this time and the legality of the rent prices and increases depends on what the lease stipulates and the timelines allowed for notice in our local and state ordinances. 

Always ensure you know the specific laws in your area before changing rent and ending up in hot water.

Calculate Operating Costs

Operating expenses are another critical factor many investors overlook or even overestimate or underestimate. Unfortunately, you have quite a few more expenses than just the mortgage. Your ideal scenario is to receive your rent, take out all of your expenses, and then still have some cash left over each month, depending on your goals. 

Common rental property operating costs include:

• Utilities (we almost always suggest separating these out if they are not. speak to your agent about if your property is a good fit for this. We have contractors on hand).
• Property & Liability Insurance
• Property Taxes
• Vacancy
• Management
• Maintenance & Repairs

This list can be added to, depending on your location. 

The rental market is ever-evolving, with each location balancing appreciation and cash flow, which you need to consider. The 1% rule provides a quick way to estimate how much rent to charge. It suggests that your monthly rent should be about 1% of your property’s value.

For instance, if your property is worth $200,000, you’d aim for $2,000 in rent. Once you’ve calculated this, compare it to your expenses, ensuring your operating costs (like maintenance, taxes, and insurance) are less than 50% of your gross rental income. This ensures profitability while covering essential costs.

These are just some baseline rules to examine, and in today’s market, these rules may not even be completely achievable! Use them as a rule of thumb or idea to see if I want to examine a deal even further. The 0.8% rule may actually be the new standard; it is just not as catchy. 

Determine the Value of Amenities

You can typically increase rent for units that offer desirable amenities. 

Features such as smart home devices, fitness centers, and pet-friendly services can significantly boost a property’s appeal. Notice that I said "appeal" - which relates to MARKETABILITY AND VACANCY. Putting a ring camera on your front door and updating a few other things doesn't ALWAYS equate to a higher rental value - but it may ensure that you actually get rented and retain tenants. Other popular amenities that may justify higher rental rates in our area specifically include outdoor spaces such as large yards, sunrooms, and private decks, higher-end kitchens, in-unit laundry, parking, and accessibility. 

Offering these features can enhance your property’s value and differentiate it in a competitive rental market.

Many landlords also think that they can quickly increase rent simply by "adding bedrooms" where as we have seen this go absolutely wrong when they come to us with a rental that has no living space for the people who are supposed to be occupying the 4 tiny bedrooms. The unit could potentially sit unwanted by those who are passing it up for other actually appealing 4-bedroom units.

Adjust Rent Based on Seasonality and Inflation

Rental demand fluctuates throughout the year, with higher rents in our area peaking during periods like spring and summer into fall, with winter really slowing down people's desire to move. People would rather not move their kids during the school year or pack during the holiday season.

Inflation also affects rent. As operating costs increase, landlords may need to raise rents. Always monitor the local market, inflation trends, and cost of living to determine appropriate rent increases.

Final Thoughts 

Setting the right rental price is crucial for maximizing revenue and long-term success. In a competitive market, consider adding value with upgrades like parking spaces or smart home features to attract tenants. Pet-friendly properties can also command higher rent, though they come with potential concerns like pet-related damage.

For managing rent collection and expenses, we at Revolve Real Estate streamline the process with automated payments, reminders, and even late fees. Tenants can easily pay via ACH or credit card from any device, ensuring timely payments and a smoother experience for both landlord and tenant. These payments are directly deposited into your operating account and not ours. Gone are the days of mailing rent checks, manually tracking bills, and driving around in search of 'for rent' signs."

More Questions? Contact Us today!

Kate Ruane
Owner / Broker
Revolve Real Estate