How I estimated how much to rent our house for

What do you think this mansion rents for?

One of the key pieces of information when evaluating a rental property before you buy it, is how much rent you think you can get for it. This is a little bit of an art and a little bit of a science. This is the process I went through for our first rental and what I do now when looking at potential properties online for #2.

Quick and dirty estimates
If I am looking online at a property and I want to see if it's in the ball park, I will check two places. The first is the rent estimate from Zillow. I assume this is based on the attributes of the house from the listing information and some sort algorithm but I couldn't tell you what...really it's just a quick check to see if you can get at least1% of the purchase price in monthly rent. If the house is priced way over that, I don't bother looking further; not that the listing price is the sale or offer price but hey, there are lots of other houses, I want to be in the range at least before I spend more time.

The second is Rentometer, which will give me a range of rent listing prices (current and recent history) based on the address and number of bedrooms. If I need the top end of the range to make it work, that is probably not ideal. One downside to rentometer, is that the numbers it gives you are only based on the number of bedrooms and doesn't consider the number of bathrooms. You will be able to rent a 3bed/3bath for more than a 3bed/1bath, so keep this in mind. If you have the house that only has 1 bathroom you will be on the lower end of the range but if you have the 3 bathroom house, you might be a little higher.

More robust estimates
If I'm going to go look at a house in person, I would do more research into the rent prices in the area. I would look at all the rental listings in the neighborhood of similar size properties and anything of any size that was with a few blocks of the house I was considering. When you are looking at the listings you want to consider if they look nicer (look at all the photos) than the one you are offering and amenities like washer/dryer, parking, garage, yard. If yours is nicer, you might get 25, 50 or 100/mo more. If yours is less nice you will get 25, 50 or 100/mo less. This is more of an art than a science, would you prefer a larger yard and washer dryer? Yes? Well most renters probably will too.

I will look at all the listings on Craigslist and Zillow rent including the pictures and what amenities they are offering. If your house has a yard look and see if lawn service is included at nearby houses. Apartment complexes are tricky too as they often offer leasing incentives such as a super low deposit (I would never do this) or a month free when you lease, which makes the overall monthly price lower. You need to consider if it's one month free + 11 months at 1350, that is really only 1,196.25/month.

All of this information will help you come up with a range of what the property you are considering could rent for.

So, is it a good rental or not?
When we did this for our rental initially, I thought it could rent for a maximum of 1350/mo but it could also be lower around 1150 or 1200. To cover my bases, I ran all the numbers assuming a rent of 1100/mo.

From the monthly rent, you want to subtract all expenses including mortgage payment (see below how to get this), taxes, insurance, maintenance/funds for capital expenditures (1% of purchase price/year), vacancy (10% of rent) and account for property management. Even if you are planning to manage your property yourself, include 10% of the monthly rent going to property management because you might not be able to self-manage in the future and this accounts for your time (your time isn't free!).

What is left after that? I was looking for at least $100/mo in cash flow, otherwise it wasn't worth it to me. Even at 100/mo if the house requires a big down payment it's probably better to keep looking.

To figure out your monthly payment, you need to know what your down payment is, interest rate and how much you are paying for the house. Of course, the less you pay for the house, the more money you can potentially make. I will run the numbers multiple times with different purchases prices to establish the maximum I'm willing to pay for a house. Of course I start out below that but the key thing is not to end above that because you get swept up in the negotiation process.

I don't want to waste time offering on a house 100 times when the seller will not realistically sell for that either though, that is why I started with the quick and dirty evaluation at the beginning to see if the listing price was at least in the ballpark.

For example, the rental we bought last year was listed for $120,000 but had been on the market a while and through a few price drops. It was still priced too high for the area based on other listings and recent sales. My maximum price was 100,000 based on expenses and the rental price estimate I had done. With all expenses considered, I could pay 100k (after lots of negotiation, we paid a little below this) and rent for 1100 and still make a profit. I also figured out what the "break-even" rent price was (what I'd have to rent for to break even) and it was 950. I was certain I could rent for that if needed.

What did we price it at?
We actually closed on our rental at the worst possible time, the early closing was a concession to the seller. I was leaving 4 days after the closing for a work trip, which was being combined with our vacation so I was gone about 2 weeks and my fiance 8 or 9 days. This was time it was going to sit empty, which caused me a lot of anxiety. So we decided to list it at the top end of the market that first weekend and see what kind of interest there was. We priced it at 1350 for that first weekend and while I was gone.

The funny thing is, we almost rented it for 1350 to two different couples. In the end, it rented for 1195 a few weeks later, which made me very happy I used 1100 for the projections!


Are you a landlord? How do you price your rentals?