HomeReal EstateHow Do I Know if I’m Paying a Fair Price for Rent?

How Do I Know if I’m Paying a Fair Price for Rent?

Currently, there are about 43 million rental units that are occupied in the United States. Becoming a renter is much easier than becoming a homeowner—while a mortgage from a bank is usually a 15-year or 30-year commitment, most rental leases only last one year. Because of this, renting is a very popular option for people who are not ready to buy or who are likely to only be living in an area for a limited amount of time.

When comparing different rental properties, there are many important factors you’ll want to keep in mind. Usually, location is considered to be an extremely important variable for renters—while other components of a property can potentially be changed in the future, location will always remain the same. Other factors to keep in mind include the amenities that come with the rental unit, the number of bedrooms and square footage, and many others.

Of course, the most important number you’ll probably need to consider will be the cost of rent. As a general rule of thumb, it is usually a good idea to budget about 30 percent of your available income for rent (though there are many exceptions to this rule). Naturally, this means there will likely be some properties in your city that you can easily afford and some that, unfortunately, remain out of reach.

In addition to finding a rental property that is within your budget, you will also want to consider whether the price you are paying is fair. It’s well-known that rent in cities like San Francisco or New York will be much higher than what you’ll find in a small midwestern suburb. But where do you draw the line? How do you know when you’re paying too much and how do you know when you’ve found a good deal?

1. Look at Nearby Properties

One of the best ways to get a feel for a neighborhood (or a specific property) is to look at the average rents at places nearby. One of the most useful metrics to consider will be price per square foot—this makes it easier to compare properties of different sizes.

If it appears that one of the properties you are considering costs considerably more or less than its alternatives, you should ask yourself why. Does it cost more because the property is simply better (better location, pool, parking, amenities, etc.)? Or because the landlord is trying to get you to pay more? On the other end of the spectrum, does this property cost less because you have found a good deal? Or because there is something severely wrong with it?

Making sure the property you are considering is priced fairly will certainly require a bit of investigative work. Regardless, comparing it to nearby alternatives will help make it easier for you to get oriented with the local market.

2. Use a Rental Property Platform

There are many ways to learn more about your local rental market but perhaps the easiest way to do so is to use a rental property platform, such as Renthop. These platforms make it easy to gather data that has been sorted by neighborhood (price per square foot, average rent, market trends, etc.) and compare many different properties at once.

If you do have a particular property in mind, compare the property’s data to the averages within its neighborhood. Doing neighborhood-specific research is especially important in densely populated cities such as New York City, whose rental market dynamics can change very quickly within just a few blocks. 

3. Ask About the Pricing Model

Some landlords will use a pricing model in order to determine what is a fair rental price—others will just come up with a number that simply “sounds good” and move on. When you are doing your preliminary interview as a renter, ask how the property management team came up with the number they’ve quoted for rent.

This is a somewhat common question, though you will not always get a very clear answer. If the landlord refuses to answer, that might be a possible red flag. Regardless of their response, inquiring about the pricing model can be an effective way to sort the desirable landlords from the ones you’ll want to avoid.

4. Track Rent Over Time

Both within neighborhoods and within individual properties, rental prices will consistently change over time. Across the entire national rental market, rents can typically be expected to increase by about 3 to 5 percent per year.

If a specific unit’s rent has increased by much more than that, say 10 percent, there is a good chance the property has likely gone from being priced at market value to suddenly being overpriced. Again, this is another question you can reasonably ask during the property showing to see what your landlord might say. “Why did you choose to increase rent by 15 percent this year?” is a pointed question that can often lead to some interesting answers.

5. Investigate Occupancy Rates

Occupancy rates, especially for large rental properties (with 10 or more units) will often reveal quite a bit about the property’s current state of being. If a property has a very low occupancy rates—say, less than 80 percent—this typically reveals that the property owners are asking for much more than what the property is really worth. Of course, there could be other variables that’d explain low occupancy, but this figure is one that is worth investigating.

6. Read Reviews for the Property

One of the best ways to learn more about a prospective rental property, simply, is to inquire from the people who actually live there—especially people who’ve lived at the property for a long time.

When reading reviews (or asking questions yourself), there are a few red flags you will want to keep an eye out for: comments complaining about management, complaining about sudden changes in rent, complaining that the property itself is a rip off, and complaining about other factors might all be signs that you should look elsewhere.

The rental market is rapidly changing. Before signing any lease, be sure to do your research and confirm you are paying a fair price.

Andrew is a freelance writer that primarily focuses on real estate and finance topics. He graduated from the University of Colorado with degrees in Finance and Political Science and has since worked in the real estate, life insurance, and digital marketing industries. When he is not writing, Andrew enjoys skiing, playing piano, painting, and spending time with his wife (Maggie) and cat (Crow).