Whether buying a rental property as a seasoned investor or a novice, the question of how much you should charge for rent is the first question you should ask yourself.
If you charge too much, your property will stay vacant longer because nobody will want to rent from you. And charging too little will lose you money over time as well.
Getting that price just right should be the first thing you think about before even beginning to seek renters. Thankfully, there’s a simple rule that exists to help you understand what a good price looks like.
The “1% Rule” For Real Estate Renting
A common rule many real estate investors use is the “1% rule”.
This rule simply means that if you can rent your property out for just 1% of your purchase price each month, it should work out.
In practice, this means that if you buy a home for $50,000 and can rent it out for $500 per month (which is 1% of $50,000), then that’s probably how much you should charge for rent.
Most Properties Are Covered By The “1% Rule”
What makes the 1% rule so powerful is that it applies well to both middle-class and low-income properties.
Even if you buy a relatively middle-class home for $200,000, the 1% rule applied means you should charge $2,000. It still works.
Likewise, low-income properties like a $20,000 trailer should be able to fetch $200 per month, no problem.
There Are Some Exceptions
Just because you can make a deal work doesn’t mean you should do it.
After all, if you see other landlords around you making significantly more money than you are, something is definitely wrong.
These guidelines should not lead to dogma. They’re only suggestions.
Beware Of Hidden Costs
When you try to rent out a property, it’s important to remember that there are usually some “hidden” costs involved.
Insurance, HOA fees, and dues can kill your profits if you’re not careful.
Thankfully, our calculator tool at RentalPropertyCalculator.net has you covered.
We have systematically included all the necessary special fields so you won’t forget. Using it can definitely help you keep yourself straight.