4 Considerations When Setting a Price for your Rental

So you’ve taken the plunge and decided to rent out your house or unit. Renting a property can be a great way to earn some passive income, assuming that your costs can cover your expenses. Figuring out how to price your rental can be tricky – you don’t want to lose money, you want to make as much as you can, but also get a good tenant, and not have to work too hard to maintain…. So much to think about. Check out this list for the top four things to consider when pricing your rental.

  1. What are your expenses and how can you cover them?

Owning a rental property is just like running a business, and it helps to think about it like a business so expenses don’t get out of control. In my case, I had already put money into renovations and repairs, so it was important that I start to get some money out of my unit rather than putting more in. Expenses could include:

Upkeep and maintenance (shovelling, mowing the lawn etc.). You can sometimes discuss with your tenant who will be responsible for these things. 

Repairs and refreshing between tenants. Every time a tenant leaves, the unit needs to be cleaned, sometimes painted, and refreshed. This costs money and time, whether you do it yourself or hire someone to do it. 

Utilities. You may choose to share expenses with the tenant, or have them cover wifi and electricity. Other items like oil or a water bill, are sometimes paid by the landlord. If you can figure out the monthly cost for these items, then you can better assess how much a tenant should pay to live in the unit, and benefit from those things. 

Property taxes. You will be responsible for the property taxes for the unit. Divide the annual bill to see what the monthly amount will be. Property taxes can be higher than anticipated, depending on where the house is. 

Income taxes. Income that you earn on the rent is taxable. You will also have expenses that can go against the income, but keep in mind that the more income you earn, the more tax you may have to pay. 

  1. Location + Market 

These two factors are almost entirely out of your control, but will absolutely impact what you can charge. 

A good location, like near a hospital, university, or a downtown core, or even in an area where there isn’t much housing, can up the price you can ask for your rental. If your unit is more rural, sometimes this can be a good thing – maybe there aren’t many places available to rent in that area. But if renting isn’t common in the area, charging a high monthly rate may just price your unit out of reach for most people living in the region. 

That being said, the market – the number of renters versus units, and how popular a particular area is – can be a huge factor.  In an area with very few units with many people wanting to rent, you certainly could charge higher prices. It helps to research the area and find out what other comparable houses or units are going for. Charging more doesn’t always equal less work for you! 

  1. What kind of tenant can pay your price

After researching the market and the location, you might have a pretty good idea of what you think your rental should be worth. You may even believe that you can get top dollar for it – what a deal! The next thing to think about is what kind of tenant can pay the price you want, and whether that’s the kind of tenant you in fact want to rent to. 

When I was a renter, I expected more from the landlord and the building whenever I paid more for rent. When I was paying relative peanuts for a shared historical (that is, old and cold), perhaps somewhat illegal unit in a university town, I was content to let things slide, versus paying more than half my take home for what should be a well cared for downtown unit where I expected things to be taken care of, addressed quickly, and to live comfortably. 

As a landlord, knowing that charging a lot more for a rental means the tenant will likely expect better service may take away from your ability to make this truly passive income. And that could be okay! Some landlords are capable of doing their own handiwork and repairs, or have a single family home with few disruptions to rent out and don’t expect to be called on often. 

The price you set will also often have an impact on whether the tenant is able to live there alone, or needs to get roommates or a partner to share the space. More people = more wear and tear = more maintenance during or between rentals. 

  1. Long term versus short term renters 

Obviously if you’ve got this far, you probably aren’t considering a short term vacation rental sort of situation! Short term rentals can be great money makers, but require a lot of work in between guests, and to manage bookings. If you aren’t living right on top of your vacation rental, hiring third party help may be the best option, but it still can get pricey. Since we want to avoid the work of switching out, looking for a long term tenant can reduce the turnover and less turn over equals fewer times you’re in cleaning up, painting, and advertising the unit. 

A regular lease runs for a year, and some renew automatically while others will have to be renewed by both parties. Alternatively, some people prefer to offer a month to month lease, with the option for either the landlord or tenant to bring the relationship to an end under certain conditions. 

A shorter term lease can be good if you are wanting to use the property more often between tenants, as a cottage or vacation space, or if you’re considering selling in the future. If not, it makes more sense financially to rent it for a longer term, and reduce the turnover between renters. 

Simple right? Four tricks to setting the right price for your unit.

  1. Expenses
  2. Location
  3. Tenant
  4. Rental Term

5 Important Things to Know Before Becoming a Landlord

I became a landlord in my twenties, after buying a cheap house, living in it for a while, and then relocating for work. Rather than sell the property, I decided to rent it out.

Choosing to rent out a house that you’ve lived in and love is not an easy decision. I had put time and sweat and money into making my house a home for me – with the paint colours and finishes that I liked. It wasn’t a fancy house, but it felt like mine. Offering it to someone else felt very… personal, like inviting someone into your space and never being able to ask them to leave.

As an introvert, renting was also a bit more challenging. I knew I would likely have to advertise, post pictures of my home on the internet, and talk to lots of people about their situations in order to find a good tenant. Just by fluke, I ended up getting a tenant through word of mouth instead, so I didn’t have to worry too much about it this time around! But I know in the future that putting myself and my house in the public eye is a risk I have to accept.

Read more: How I flipped my $90,000 house into a $210,000 investment

Having tenants ended up being a very positive experience. Financially, it’s really nice to have that little extra income coming in each month, and the rent covers the mortgage payment on the house. But also, because I’m renting a house in a rural area, it feels good to contribute to the housing stock, and give a safe and clean place to live to other young people like I was when I bought the house.

Whatever your motivations for renting out a property or becoming a landlord, so many negative situations can be avoided with good preparation, relationship building, and clear expectations.

Here are five important things to know before becoming a landlord.

Building a relationship with the tenant can create a positive rapport. Understanding where the other person is coming from, and being prepared for what might bother them in the future, sets up the relationship for success.
  1. Write everything down. If it isn’t in the lease, or in the attached schedules, then it doesn’t exist.  It isn’t that you don’t trust your tenant; trust is important in the relationship. But things can happen, circumstances change… other people are unpredictable! Writing everything down, and being very clear in advance about your expectations can help build the relationship on solid footing.
  2. Choose your tenant carefully. I was really lucky – I knew personally and professionally the tenant who ended up renting my house. It’s easy if you live in an area where housing is scarce, to have many many applicants for a house or unit, and to get bogged down in choosing. Some factors to consider include obvious things like, is the person employed, do they have pets, do they seem responsible… But less obvious things can be who they choose to give as references, do they have small children who are likely to go wild with the crayons on your freshly painted walls, and even thinking about how long you expect they will stay. If you’re looking for a year after year tenant, maybe someone with a family and a job in the region makes sense. If you want to have access to the property again though after a year or so, perhaps someone who seems likely to move again, or someone with a more transient job would be a better choice.
  3. Pricing your rental can make a big difference. This feels obvious – of course, the amount of rent you get for your unit or your house can have a direct impact on your back account, or your financial comfort level. But the price you set can also dictate who is able to rent your unit, and who would want to. I knew I was renting my house at a time and in a place where there was not a lot of choice for tenants. There were very few options, so I knew I had a captive audience for my unit. I could probably have hiked up the rent, and forced tenants to have roommates, or really narrowed my possible tenants to wealthier people. But I wanted to consider the kind of tenant I wanted; I knew I might not want someone for more than a year. I wanted some flexibility. And I didn’t want someone who was going to be very demanding about maintenance. It can help to make a list of the qualities you want in the tenant, and then price accordingly. Just because the market can handle a really high monthly price, doesn’t mean that those are the tenants you want!
  4. Being a landlord can be profitable on a month to month basis, but can also be time consuming. One of the big fears I had going into this whole landlord situation was the amount of my time that could be taken up with it. While I knew I would make some money off the rent, I didn’t want my role to take up so many hours that the price wasn’t worth it. I felt confident that if I needed work done on the house, or maintenance, that the tenant would let me know and I could access those services. But if I hadn’t been so sure of that, I might have felt that this whole situation would take up way too much of my down time! Fortunately, there hasn’t been much need for the tenant to contact me, but when things happen – the power goes out, a window cracks, whatever – you have to be available. Make sure you feel ready to take on that commitment.
  5. Everyone is self-interested. Tenants care about what matters to them! They want things in the house to work. They want the apartment to be well cared for. They want the landlord to be responsive. They don’t care about the things you, the landlord, might care about. Recognizing that reality, how can you create systems and a relationship that protects both you and the tenant, and your different priorities? Building a relationship with the tenant can create a positive rapport. Understanding where the other person is coming from, and being prepared for what might bother them in the future, sets up the relationship for success.

Have you ever considered being a landlord? What fears and concerns do you have about the process?