Pricing a rental property can be a challenge, especially with the Colorado Springs rental market changing and trends shifting. Today, we’re talking about what you need to consider when you’re assigning a rental value to your property in a competitive market.
Get to Know the Market and the Competition
First, take a look around and see what other properties in the area are being rented for. This is not the easiest thing because most of the data you have access to is not the pre-negotiated rental price. It’s just what someone is asking and not what they are actually receiving in dollars on the lease.
Also, you need to look at how to compare the value if your home isn’t exactly like those you find on the current market. Maybe you have four bedrooms instead of three or an attached three-car garage instead of a two-car garage. What do you do?
It’s going to depend on the market area and what the norm is. But, you can usually get a good feel for what is going on based on the active data that you have. You can reach out to Colorado Springs property managers for some of that information from their own portfolio.
Look at your home and what it has to offer. Be objective, meaning it is not worth more just because you like it more than the neighbor’s house. It may not be worth more just because you did some updates to it. Many neighborhoods cap out at a certain price, and if you have over-built your home, your ROI and rate on return may suffer. In a neighborhood of $1,500 rental homes, yours is not going to be worth $2,500, no matter how much work you’ve put into it.
Talk to people in the neighborhood. If this isn’t the first time you have rented the home, you probably know the people in the area and you can ask what they rented their homes for. Not what they asked, but what they actually rented the home for and to whom.
Set Your Rental Qualifications
Establishing consistent rental criteria is very important. If you are renting to under-qualified or low-qualified residents, the likelihood of you achieving a higher rent price exists, but you are also taking on a much higher risk.
This is important because some owners get caught up with numbers that seem off. Maybe your neighbor got $1,700 for his property and we are recommending $1,500 for yours. This is because we are always seeking highly qualified residents. Good tenants who meet our standards are not willing to pay more than market value, and we don’t really have to take a risk on them. If you’re willing to sacrifice some of your standards, then maybe you could rent to someone who is more of a risk and willing to pay more. Hopefully, it works out but what if it doesn’t?
In regards to qualifications, be sure you have them written out. That way everyone who is interested in your home can see those and you can weed out those who do not qualify right away. If your minimum qualification requires that they make three times the rent and there is someone looking at the home who only makes two-and-a-half times the rent and you have not conveyed your standards to them, they may fill out the application and waste some of your time and you may waste some of their money. You could get half way through the process and then have to deny them because they didn’t meet the qualifications.
Pricing is important and marketing is very important.
Take Good Marketing Photographs
When you are pricing your property, understand that poor photos will not get you the same response rate as listings with exceptional photos. A great marketing strategy includes professional-quality pictures with a good camera or a hired professional to take photos. Many residents will never see your home if you don’t have great photos. They will look at the pictures and move on. It almost doesn’t even matter what the rent price is. Or, you are going to have to reduce the rent price so drastically, that someone will rent it just because it is priced so low and not really because it is the home that they love.
Vacancies Cost Money
Make sure you are marketing the property correctly and you have priced it correctly based on the things we have explained here.
You probably have a pretty good idea what your home is worth to you or to someone else, but those are not the same things. And there is no correlation between your monthly expenses and what your home is worth to someone.
Owners sometimes come to me and explain their mortgage is $1,500, and they want to earn that and then some, but I often have to tell them that the home is only going to rent for $1,200. Residents do not care that your carrying costs exceed the market value. Keep that in mind because when you mortgage your home, you have to plan for market changes. You may get stuck on a static price, and that could lead to an empty property. Vacancy is always more expensive than a reduced rental price.
Be sure to take good pictures, ask around the neighborhood and call a Colorado Springs property manager for help. Maybe you don’t need property management services, but you can certainly benefit from professional help when it comes to pricing your property. This is a skill we have mastered over many years because we do this so often. Contact us at Muldoon Associates.