How To Determine Rental Value
Posted by Teresa on July 28, 2009 under Landlord and Tenant FAQs | 
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Determining how much rent to charge is not easy. How do you know what your market will bear? Since your goal as a landlord is to make a profit on your rental properties, you want to get as much as possible, right?
Setting rent too low will decrease your chance to make a profit. But setting it too high could chase tenants away—and an unleased property won’t make you any profit, either! You want to be like Goldilocks when setting rent: not too high, not too low—you want to set it so that it’s just right!
Some easy ways to determine what your local rental market will bear is to ask real estate agents, read the local advertisements, or look at Craigslist.com. You can also find out what the Fair Market Rent for your area is.
What is Fair Market Rent?
Fair Market Rent refers to the amount of money a property will lease for. It is determined by a number of variable factors, such as location, local economic conditions, market need, and the community cost of living.
The U.S. Department of Housing and Urban Development (HUD) uses Fair Market Rent (FMR) values to determine the eligibility of rental housing units for housing assistance, known as Section 8 payments. The values are designed to be high enough to ensure an adequate supply of rental units, but low enough to serve as many families as possible.
Landlords can use FMR to determine the amount to charge for a rental unit. Setting rent at or slightly below FMR is smart because a fair rent will draw tenants—who usually know the market they live in and will not be willing to pay above-market rents.
Fair market rents also indicate whether a rental market is appreciating or declining in value, which can help prospective income property owners decide where to invest.
HUD publishes the Fair Market Rents for every metropolitan area in the United States, which is accessible on their website: http://www.huduser.org.
Landlords can also check out rentometer.com, which uses a proprietary algorithm to tell you if the rent you are charging for a property is too low, way too high, or reasonable. Just enter the address, number of bedrooms, and rent you are considering, and you’ll get an idea of what other units in the neighborhood are renting for.
Doing your homework before setting the rent for your rental property will help ensure both profits and tenants!