Effectively pricing a rental property

Clinical Assistant Professor Kathryn Eaton, shares her experiences of being a landlord in the Phoenix real estate market. This particular article deals with the confusion and uncertainty that can surround the pricing of property.

By Kathryn K. Eaton  |  Clinical Assistant Professor Marketing

Setting a price for your rental property can be tricky. When you're looking at your mortgage bill each month, it might be tempting to start there. Of course you'd like the rent to cover your mortgage, but you also need to make sure that what you're asking for is in line with the market rate. You need to be prepared for the possibility that the best rental price might be less than your payment.

When setting a price, I start by looking at the Rent Zestimate on Zillow.com. The website is a helpful resource to at least get you to a starting point — simply put your property address into the search bar, and you'll get a ton of information about your own property.

The rent estimate provided online is a great place to start, but it is based primarily on square footage and location. Your property might be worth more or less, depending on its condition, upgrades and amenities.

I also go on Craigslist and Zillow and search for other rentals in the area to see how mine stacks up. I want to see what potential tenants will see, so I can get a feel for how my property will fare against the competition. If mine doesn't have as many upgrades, I should price it a bit lower to account for that difference. On the other hand, if mine is in better shape, I could probably price it a little higher.

You want to price your property well from the beginning, so you don't have to lower the asking rent later. Tenants look for properties over the course of several weeks — if they see your property with the price coming down, they might either wonder what's wrong with it or hold out to see if you'll lower the price further.

Setting the price competitively from the start makes good financial sense as well. Let's say you want to rent the property for $1,500 a month, which you know is a stretch. It might take you a month longer to find a tenant who is willing to pay that much, so you are essentially out $1,500 for the month.

Now let's say you price it from the beginning at $1,450 per month, and you are able to rent it right away. Now you're only out $50. It would take 30 months at $1,450 to equal that $1,500 loss.

You might also choose to rent at a higher price and offer free services to the tenant, such as yard care or pool maintenance. This can be good because you'll know for sure that these things are being taken care of. The drawback is that your price will now seem less competitive. You would want to make it clear in your advertisement that these services are included.

What I personally choose to do is to offer these additional services as an option to potential tenants. I make it clear that the pool and yard must be maintained, and that I will be checking on the property to ensure that it's being done.

First published in The Arizona Republic, June 1, 2015.