When you’re trying to determine how much rent to charge, there are a number of things you’ll need to think about. A good first step is figuring out what your home’s currently worth in the market. That amount could be different from the original price of your home.
The amount of rent you charge your tenants should be a percentage of your home’s market value. Typically, the rents that landlords charge fall between 0.8% and 1.1% of the home’s value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month.
If your home is worth $100,000 or less, it’s best to charge rent that’s close to 1% of your home’s value. If your house is more expensive, however, (meaning that it’s worth over $350,000) it’s a good idea to charge less rent so that you can attract more buyers. Charging rent that’s too high will make living in your house unaffordable for many people.
Other than your home’s worth, you’ll also need to consider what landlords are charging for similar rentals in your area. If the rent you want to charge is unreasonable in comparison to other rentals in your area, you might struggle to find a tenant who’s willing to commit to your terms. A website like Trulia or Craigslist can show you how the rental rate in your head stacks up against the rates your competitors are offering.
If you’re renting out your house so you don’t have to pay for your home loan, the rent you charge has to be at least equal to the cost of your monthly mortgage bill. Don’t forget to factor in an estimate of repair costs, taxes, homeowners association fees and insurance when you’re deciding what to charge.
One other thing to keep in mind: You can’t necessarily choose whatever rental rate you want. Some states limit what landlords can charge for rent, security deposits and late fees. Rent control laws exist, for example, in places like New York, Maryland, California and Washington D.C.