Determining How Much You Should Charge for Rent (2024)

Determining How Much You Should Charge for Rent (1)

Renting out your house might be worth considering, especially if you’re ready to relocate and you’re opposed to selling. Picking up a tenant could help you pay off your mortgage more quickly.Then, you could put the money you’ve earned toward a financial goal, like perhaps into a retirement account. If you’renot sure what to charge for rent, we’ve got somefactors you’ll need to take into account.

Do you have questions about how your rental income could affect your long-term financial plan? Consider speaking with a financial advisor.

What to Consider Before Renting Out Your Home

Deciding to rent out your house rather than sell it might make sense for various reasons. Homes can be tough to get rid of, particularly if your asking price is too high or your home listing isn’t visible enough. And selling might not be a viable option if you haven’t built up enough equity in your home. If you’re looking to purchase a different home, you could take your equity and use it to make a down payment.

But allowing someone to rentyour home, even temporarily, is a big deal. For one, are you ready to become a landlord? Regardless of how responsible your tenants might initially seem, they could end up destroying your home or bringing down its overall property value. And you’ll need to be prepared to have a flexible schedule so your tenants can reach you if a toilet clogs or a pipe bursts.

Turning your home into an investment property could be a financially risky move as well. You might have to spend money to fix up the property before you can rent it out. While there are many tax breaks available to landlords, it’s best to plan on paying for expenses such as property taxes, maintenance costs and homeowners insurance. Plus, you’ll be on the hook for paying the mortgage as well if your tenant suddenly moves out and it takes time to find a replacement.

On the other hand, renting out your home could provide you with enough money to pay off your mortgage. That could be a great way to rake in extra cash if you’re waiting for your home’s value to go up. You could then use the remainder of your earnings as profit or savings.

How Much Should I Charge for Rent?

Determining How Much You Should Charge for Rent (2)

When you’re trying to determine how much rent to charge, there are a number of things you should think about. A good first step is figuring out what your home’s currently worth in the market. That amount could be different from the original price of your home.You could use a website like Zillow to estimate your home’s value. But it might be best to find a home appraiser who can give you a more accurate assessment of what it’s worth, based on the condition of the home, local home sale prices and where the home is located.

The amount of rent you charge your tenants should be a percentage of your home’s market value. Typically, the rents that landlords charge fall between 0.8% and 1.1% of the home’s value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month.

If your home is worth $100,000 or less, it’s best to charge rent that’s close to 1% of its value. If your house is more expensive, you may want to charge less rent so that you can attract more tenants. Charging rent that’s too high will make living in your house unaffordable for many people.

Other than your home’s worth, you’ll also need to consider what landlords are charging for similar rentals in your area. If the rent you want to charge is unreasonable in comparison to other rentals in your area, you might struggle to find a tenant who’s willing to commit to your terms. A website like Trulia or Craigslist can show you how the rental rate in your head stacks up against the rates your competitors are offering.

If you’re renting out your house so you don’t have to pay for your home loan, the rent you charge has to be at least equal to the cost of your monthly mortgage bill. Don’t forget to factor in an estimate of repair costs, taxes, homeowners association fees and insurance when you’re deciding what to charge.

One other thing to keep in mind: You can’t necessarily choose whatever rental rate you want. Some states limit what landlords can charge for rent, security deposits and late fees. Rent control laws exist, for example, in places like New York, Maryland, California and Washington D.C.

How Do I Put My House Up for Rent?

When you’re ready to find tenants to rent your home, you can ask a real estate agent to list it. But that comes with a cost. You’ll owe your agent commission, whether that’s equal to one month’s rent, or another percentage.

If you want to publish your real estate listing, you can upload it onto a site like Zillow. You can make flyers to hand out or use your social media accounts to get your rental out there. Before you hand over the keys to your house, be sure that your prospective tenants have solid financials. Doing this will ensure you know they can afford to keep up with their rent.

Bottom Line

Determining How Much You Should Charge for Rent (3)

If you’ve chosen to rent out your house, you can’t charge rent solely based on your mortgage payments. Picking a rental rate based on the total cost of turning your home into an investment property and on other rent prices in your area can ensure you simultaneously make a good return and find tenants promptly. This part of becoming a landlord is perhaps the most important. It could determine the success your property has for the foreseeable future.

Tips for Using Rental Income to Maximize Your Financial Plan

  • Owning and renting out an apartment or home can have a profound effect on your income picture. A financial advisor can help you use this income to better your long-term financial plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you’re unsure about investing in homes, apartments or land, check out SmartAsset’s comprehensive guide to real estate investing.

Photo credit:©, © Sinha, ©

Determining How Much You Should Charge for Rent (2024)


How do I figure out how much to charge for a rental? ›

To determine how much rent to charge a tenant, many landlords use the 1% rule — which suggests charging 1% of the home's value for rent. For example, a home valued at $220,000 would rent for $2,200 per month.

How do you calculate how much you should pay for rent? ›

30% Income Rule

According to the rule, you can multiply your gross monthly income by 0.30 to determine the maximum rent you can afford. For example, if your gross income is $5,000 a month, your rent should be a maximum of $1,500 (5,000 x 0.30 = 1,500).

How do you calculate rent to price? ›

How to Calculate Price to Rent Ratio. Calculating the price to rent ratio is easy to do: Median Home Price / Median Annual Rent = Price to Rent Ratio. $120,000 Median Home Price / $11,000 Median Annual Rent = 10.91 Price to Rent Ratio.

What rent should I charge? ›

Buy to Let mortgage lenders will usually want the rent you charge to cover at least 125% of the mortgage payments.

What is a reasonable percentage of income to spend on rent? ›

One popular guideline is the 30% rent rule, which says to spend around 30% of your gross income on rent. So if you earn $3,200 per month before taxes, you could spend about $960 per month on rent. This is a solid guideline, but it's not one-size-fits-all advice.

How much should I spend on rent if I earn 40000? ›

If you make $40,000 a year, you can afford to spend $1,000 a month on rent. If you make $50,000 a year, you can afford to spend $1,250 a month on rent. If you make $75,000 a year, you can afford to spend $1,875 a month on rent. If you make $100,000 a year, you can afford to spend $2,500 a month on rent.

What is the formula for rental property? ›

To calculate the property's ROI: Divide the annual return by your original out-of-pocket expenses (the downpayment of $20,000, closing costs of $2,500, and remodeling for $9,000) to determine ROI. ROI = $5,016.84 ÷ $31,500 = 0.159. Your ROI is 15.9%.

How do you calculate rent percentage? ›

To calculate it, divide the base rent by the percentage. In this case: $5,000 ÷ 7% = $71,428. When Moonbucks' sales exceed $71,428, it must pay the landlord 7% of every dollar it brings in as sales.

What percent of your budget of $2500 would your rent be if you pay $650 in rent? ›

Final answer:

To find the percentage of your budget that your rent would be, divide the amount of rent you pay by your total budget and multiply by 100. In this case, the rent would be 26% of the total budget.

What is the formula for rental rate? ›

For example, let's say you buy an income property for $200,000 and expect a 10% vacancy rate. The rental fee you charge renters should equal 0.01 x 1.1 x $200,000 = $2,200.

What is the 1% rule? ›

The 1% rule states that a rental property's income should be at least 1% of the purchase price. For example, if a rental property is purchased for $200,000, the monthly rental income should be at least $2,000.

What is the 1% rule for rent to price ratio? ›

The 1% rule of real estate investing measures the price of an investment property against the gross income it can generate. For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price.

What is the best percentage for rental? ›

While what constitutes a 'good' rate can vary depending on an individual's investment strategy, location, and market conditions, generally, a return between 6% and 8% is considered decent, while a return of 10% or more is viewed as excellent.

How to calculate rent per day? ›

By the Number of Days in a Year

It works like this: take the monthly rent and multiple it by 12 to find the total yearly rent. Then divide the sum by 365 to determine the daily rent. Once you find the daily rent, you multiply it by the number of days the tenant will occupy the unit.

What is the price to rent ratio? ›

The price-to-rent ratio is the ratio of home prices to annualized rent in a given location. This ratio is used as a benchmark for estimating whether it's cheaper to rent or own property. The price-to-rent ratio is used as an indicator for whether housing markets are fairly valued, or in a bubble.

What is the 50 20 30 rule? ›

Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

What is the rule of thumb for rent? ›

It is recommended that you spend 30% of your monthly income on rent at maximum, and to consider all the factors involved in your budget, including additional rental costs like renters insurance or your initial security deposit.

Is the 30 rent rule realistic? ›

The 30% Rule Is Outdated

Abiding by the 30% rule as the de facto personal finance rule is outdated and does not accurately reflect today's living expenses. To start, averages, by definition, do not take into account the huge variations in what individuals do.

How do you calculate rental expenses? ›

However, the general theory of calculating the straight-line rent expense for a particular contract will remain constant: sum the total net lease payments and divide by the total number of periods in the lease.

How to calculate rent per square foot? ›

To find out the rent per square foot, take the yearly rent and divide by the square footage of the space. For example: annual rent is $50,000 to rent a 2,000 SF space. To find the rent PSF divide $50,000 by 2,000 = $25/SF.

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