How to figure out what to charge for rent

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. However, there are many factors to consider when setting a rental price, such as local rent control laws, the cost of similar rentals in the area and changes in the local market. And, of course, this year requires additional considerations and flexibility given the financial circumstances of many renters as a result of COVID-19.

According to the Zillow Group Consumer Housing Trends Report 2019, 85% of renters also find it extremely or very important that their home is within their initial budget. If you price your rental too high, your place could sit unoccupied. Too low, and you run the risk of losing money on your investment.

Note: This guide is for informational purposes only. Zillow, Inc. does not make any guarantees about the sufficiency of the information in or linked to from this guide, or that it’s compliant with current, applicable or local laws. Landlord-tenant laws change rapidly and may be regulated at the federal, state and local levels. This resource is not a substitute for the advice or service of an attorney; you should not rely on this resource for any purpose without consulting with a licensed attorney in your jurisdiction.

Look up rent control laws in your area

Not all states have rent control, but those that do are able to limit the amount of rent that can be charged and the amount that rent can increase each year. Rent control laws are set at the local level, so the average rent price by city will vary. Places that do have rent-controlled apartments and properties are:

• California
• Maryland
• New Jersey
• New York
• Washington, D.C.
• Oregon

Be sure to check with an attorney whether your city has rent control and what laws and restrictions are in place before you determine how much you should charge for rent.  Keep in mind that many jurisdictions currently have moratoriums on rent increases to provide housing stability for renters during this uncertain time.

Research the rental value of homes in the area

It’s important to know how your property stacks up against other properties in the area that have similar amenities and the same number of bedrooms and bathrooms. Using your competitors as a baseline, decide how much more you can charge in rent for the extras your property offers.

Aside from the property itself, a home’s rent price can be increased by the neighborhood it’s in and the conveniences around it. We found that 77% of renters want to live in a neighborhood that feels safe and 57% say their commute to work or school influences their home choice  — though the rise of remote work may change this in the future. Here are some other highly important home and neighborhood characteristics for renters: 

Check changes in the local market

Remember that your rental price is typically a dynamic value that changes in response to your local market conditions and your competition. It’s ultimately up to you to decide what to charge and whether to increase (or decrease) rates at lease renewal time — and it’s important to keep in mind that this year was a challenge for everyone.

Determine a rental price using Zillow’s Rent Zestimate tool

A Rent Zestimate is Zillow’s estimate of a home’s monthly rent price, calculated using a formula. It’s available for 114 million homes in America, and is a helpful tool for landlords who want to determine appropriate monthly rent prices.

The home data we’ve compiled to generate a Rent Zestimate varies by location — some counties provide all the data we could hope for, but others are lacking key information like number of bedrooms and bathrooms, or even square footage. We’ve published a Rent Zestimate accuracy table that shows the tool’s accuracy at national, state, county and large metro area levels. You can visit your home facts page to make sure everything’s up to date — if you haven’t yet claimed your home on Zillow, we’ll verify your ownership first, which is a quick and simple process.

Budget for repairs, maintenance and utilities

Use accounting software or a simple spreadsheet to help plan for the cost of repairs and maintenance. Over the course of a year, maintenance may cost around 1% of the property’s value, so look into setting aside 50% of your rental income to spend on repairs. If you’re including gas, electric, water, sewer and garbage in the rent price, you’ll also need to get an estimate of what those costs will be when your property is occupied.

Determine the best ways to collect rent from your tenants

Once you’ve figured out how much you should charge for rent, you’ll want to determine the best way to collect rent — either online or offline. This will vary depending on your tenants, but it’s always best to offer multiple ways to collect rent. According to Zillow Group Consumer Housing Trends Report 2019 survey data, 58% of renters say they want to pay their rent online, but only 36% are given that option. Here are some other ways to collect rent:

Through a property manager: Even if you don’t hire a property manager to oversee your property, you can hire one just to collect rent.

Face-to-face payments: You can meet up to collect rent, but be wary about collecting cash.

Mail: You can have the tenant send you a personal check, money order or cashier’s check.

Drop box: This option is more secure than sending a check through the mail and doesn’t require you to meet in person.

Direct deposit: You can set up an automatic online transfer from your tenant’s bank account to your business checking account.

Online: Payments are efficient, secure and easy to use. Zillow Rental Manager offers an online payment tool that is free for you — and for your tenant, if they choose to pay with ACH.

Rent collection apps: You may be able to use a rent collection app like PayPal or Venmo through your mobile device or computer.

What is the average late charge for rent?

As a landlord, you’re responsible for collecting the rent on time — but every now and then you may encounter a situation where rent is late. Late charges for rent typically don’t apply until at least three days after the rent is due, and they’re often structured in one of two ways:

• Flat fee: The renter is charged a percentage of the month’s rent.
• Daily fee: The renter is charged a predetermined fee for each day the rent is late.

Staying flexible whenever possible can be beneficial to maintaining your landlord-tenant relationship. Even before the pandemic, a significant share of rental households are only one large expense away from being unable to pay rent — we found that only 51% of renters say they could cover an unexpected expense of $1,000.

These are the basics of how much to charge for rent and ways to collect rent from your tenants. For more information on being a landlord, check out Zillow Rental Manager. You can create and manage a rental listing; post it on Zillow, Trulia and HotPads; screen tenants; manage rent payments and more.

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