January 8th, 2019
Whether you’re just starting out with a brand-new rental property or you have a new vacancy in one of your established units, you’re going to need to set a rental price for advertising purposes in the hopes of scoring the next perfect tenant.
Should you set your rental at a price above or below market rent? Which factors should determine your rental price and which types of tenants would you like to attract?
If you rent to someone, a family member for example, at a rate below “fair market value” you’re unable to report that rent collection as income nor will you be able to write off any associated costs as ‘rental losses’ on your taxes.
Therefore, if you set a unit at a rent too low, you can miss out on some important tax benefits and disqualify yourself from particular landlord tax categories.
Simply look at some comparable rental listings in your neighbourhood to get an idea of the going rate around your property. Go to online rental classifieds as an easy way to look around, what are the average rents for a comparable one- or two-bedroom?
It’s important that you stick to comparing units in your neighbourhood to set the base rent for your own. Prices can vary greatly depending on location and proximity to amenities, such as shopping malls or transit.
Setting your rental above market rent can produce two different outcomes. First, your place could sit vacant indefinitely if you set the rent way too high without any sort of justification.
Otherwise, in an ideal world, setting your rent just above the market rent (with justifiable attractions) can net you a great, stable tenant with enough money to afford the place long term.
If you’re intending to set your rent above the average for your area, you better have some sound reasoning.
Does the unit have some new appliances? Ensuite laundry or one all-inclusive price tag will attract tenants wanting to pay for some convenience. The level of the unit can also determine how much you can charge – basements and second- or third-floor units should not be priced the same, as lower levels are less desirable.
Recently renovated or new construction units can handle a premium rent much better than an older construction, poorly kept unit. Tenants specifically looking for a newer build might be willing to pay a bit more for the luxury or cleanliness often associated with newer construction.
In general, set your price around how desirable the place is when compared to similar apartments in your neighbourhood.
Take note of things like: the kind of view the place has from the windows; how bright the space is; which updates have been made to appliances, flooring or walls; its square footage; floorplan/layout; floor level, balconies; storage; and parking.
If you’re still not sure where your unit stands when compared to other rentals in your neighbourhood, you can always get the help of a professional.
When you get your rental property assessed professionally, you can set the rent at exactly the right price, or, get some tips on unit upgrades that can justify a higher rent if your place is falling below industry standards.
Professional advice can turn that extra floor into a veritable income property.