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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
  • Tax
  • Insurance
  • 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
  • Quality
  • Location
  • 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?

Creative Commons License photo credit: Joybot

{ 7 comments }
  • Linda October 7, 2011, 10:10 am

    I followed a similar process to set the rent price for my rooms. Unless you are willing to move, then the price you’re paying for mortgage + taxes + insurance is a sunk cost; the other expenses for utilities, phone, Internet, and television can be controlled to a certain extent. Asking someone to foot the bill for your sunk costs is not the purpose of renting a room or rooms.

    When I priced my rooms out, I looked at the local listings on Craigslist and other sites. Based on amenities alone, I could have set the price of my rooms higher than they are. But you also have to know your area. I’m not in a neighborhood where there will be many applicants so I set the price a bit lower than I could have gotten in a trendier neighborhood.

    That poor guy will figure this out eventually. Hopefully it won’t be too late for him.

    Reply
    • Mike October 7, 2011, 9:14 pm

      Linda, I agree that the mortgage, tax and insurance is a sunk cost, no doubt about that. It’s completely reasonable to split the variable costs with your roommates and add a little bit on top of that to help with the sunk costs.

      Good perspective!

      Reply
  • krantcents October 7, 2011, 4:42 pm

    I used to own apartment buildings. The market dictates the rental price, size and amenities will help establish the price too. Either the guy will reduce his price or it will remain empty.

    Reply
  • Stephanie January 9, 2016, 3:57 pm

    Let me offer you some perspective.
    I am the renter of a room in someone’s home in a part of the country with lower rents on average and fewer rooms available to be rented. I have searched the internet and cannot find any information on the one subject that has caused me the most grief: What is a fair rate to charge a boarder in your home for utilities?
    The eccentric, geriatric, crazy cat lady I rent a room from expects me to split the costs of all utilities straight down the middle. If I had equal say in how those utilities were used I would agree happily. However, I do not see how a home owner can reasonably expect a renter to pay half of the utilities when her actual use is only a nominal percentage of said utilities and the home owner is wasteful and refuses to correct a water leak that is dumping over 4000 gallons into the ground per month-which I am expected to pay for.
    All I ever hear or read about is how much the renter will disrupt the life of the landlord. But if you are going to dictate every detail of a renter’s lifestyle-which let’s face it, is exactly what you will be doing-then you need to take that inconvenience into account when deciding what to charge for rent and utilities. After all, you’re not doing them a favor as much as they are doing you one. They have nothing to lose. You have everything to lose if you cannot afford your mortgage without renting out a room.
    Here’s my point: Landlords need to abide by the same rules set out for renters; otherwise resentment and animosity will cause problems you don’t want or need.
    If your renter isn’t allowed to have guests over at all-overnight or otherwise- then neither should you. It’s not okay to disrupt a renter’s peace anymore than it is for him to disrupt yours. It’s all about mutual respect and consideration.
    Landlords need to consider how the way they live will affect a renter. For example, if you have very young children, how much privacy and sleep is the renter going to lose because of your curious toddler or colicy infant?
    If you have pets, how much will your animal’s behaviours and unsanitary practices affect your tenant? If it’s your practice to allow your cats to eat, sleep and stroll on your kitchen counters, you cannot expect a renter who has to share your kitchen to tolerate this practice when it could actually cause her to become ill with parasites.
    Landlords have to be flexible if they want to succeed in retaining a valuable renter. They also have to be willing to abide by the same rules of cleanliness expected from a tenant by doing their fair share of the common area cleaning.
    The woman I rent from has health issues, so she can’t do much in the way of keeping house-but neither is she willing to credit me for doing what has to be done in order to protect our health and well being. There’s gotta be some give and take, people. The more limitations you heap on your renter, the less rent you can reasonably charge.
    Last but not least, spend time (days or weeks) thinking about the details of your rental agreement. It’s not fair to the renter if you keep adding more restrictions etc. after the papers have been signed. The renter signed the lease and agreed to the room rental costs based on the agreement you first presented. Stick to that agreement until the lease is up or reduce the rent accordingly for the added inconveniences the renter was not expecting to pay for.

    Reply
    • Juliette October 13, 2016, 4:53 am

      Couldn’t agree more, Stephanie! It’s become a ridiculous situation with the diva antics of landlords these days. They just think they can get away with charging an arm and a leg for a roach-infested dump. In my Craigslist room search, I threw out a rent range of $300-500 (this is Baltimore) that I could afford, and was met with snarky and patronizing replies to the effect of: “Well, don’t you know rent around here usually starts at $625?” Then there’s the creeps and degenerates trying to get you to be a live-in prostitute or some shit.

      I’m a law-abiding, clean and sober U.S. citizen who’s not asked for/received any government handouts in my life. I work a few part-time jobs while going back to school. I am highly educated, polite, neat as a pin, no mental problems, et cetera.

      Someone here said that a room used to go for $200/month. My, how times have changed. I’d be willing to tent camp on somebody’s land or a campground but they’d probably charge me thousands of dollars for even just that!!! Most campgrounds sadly won’t let you stay over a week at a time, so my little back-up plan wouldn’t work out anyway.

      This is why hard-working, capable and responsible people are becoming homeless in droves. And we call ourselves a first-world nation…

      Reply
  • Linda March 5, 2016, 9:58 am

    I’m renting a room to an 80 year old woman, when we moved her here we put all her furniture in garage, she was suppose to pay $400 a month and buy her own stuff, I also take her to drs appts and store, she doesn’t buy groceries or toilitries, shampoo, laundry soap etc . I cook for her n do her laundry I’m thinking of raising the rent to $700 flat rate for everything does that sound fair, she also has sewing rm .

    Reply
    • Juliette October 13, 2016, 4:58 am

      Is this a relative? Why isn’t her family taking care of her? Does she qualify for a fixed-income senior apartment, or assisted living? This saddens me. And it’s not fair to you or your family.

      Reply

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