I was browsing the online forums at work and noticed some guy trying to rent out a single room in his house for $1050 per month! This is an outrageous price to pay in my neck of the woods. I think this guy is going through divorce and realizes he needs money and lots of it. Nonetheless, it’s no reason to ask for such a high rent price. I think he was tempted to set the rent price based on the expenses of his house, which is wrong way to set the asking rent price. I’m going to elaborate on the proper way to set the rent price. But let me elaborate a little more about setting the rent price the wrong way.
The Wrong Way to Set the Rent Price
This guy is nuts to think that just by getting a roommate he can cut his expenses in half. Having a roommate helps with the monthly expenses, but it certainly does not cut it in half. When I had one roommate back when I started this renting out room gig, it cut my expenses by a third, since my mortgage payments were so high.
So this guys is probably thinking of his home expenses which includes:
- Mortgage payments
- Utilities (electric/oil/gas)
- Cable TV/Internet services
- Phone service
To determine his (wrong) rent price, he may have been tempted to sum all these expenses and simply divide by number of occupants in the household. For instance, if the total monthly expenses is $2,000 and has 2 occupants in the house including himself, he figured that it’s reasonable to charge $1,000 per month for someone to rent a room in his house. Now of course, a prospective roommate may negotiate the rent price down from there and may end up paying $900. This is wrong way to go about setting a rent price! Now of course, I don’t know anything about his house or property, it could be a really extravagant house, which then it’s probably reasonable to set a high rent price. I’m going to assume it’s not a house that’s going to be on an episode of MTV cribs.
Let me show you how to set the rent price.
The Right way to set the Rent Price
The correct approach for setting the rent price is to determine the market rate for similar rentals. A good starting point would be to think like a renter and search Craigslist and other mediums advertising places to rent. Once you find similar rentals in regards to location and size, determine what amenities or curb appeal the rental offers. Such items can be but certainly not limited to:
- Size of bedrooms
- Access to a pool/fitness center
- Level of Maintenance and upkeep
- Laundry Facility(huge convenience benefit)
- Barbecue grill on a deck/patio
Once you determined the market price for a comparable room for rent, you can simply add a dollar value based on the curb appeal and amenities. Now of course, there’s a slight flaw in that the advertised the rental price may not be the actual rental price. It’s nearly impossible to determine unless the homeowner is willing to share the information. However, if you look at the advertisements for consistency in the rent price, you can get a very good idea what your spare bedroom can command. If you’re unsure, it’s always a safe bet to err on the low side.
This leads into another good point about setting the rent price lower to get a roommate rather than having your spare room go empty. I wrote a post about this here.
I hope this gives you a step in the right direction for setting a rent price.
How does your rent pricing method compare?