How Much Should I Charge in Rent?

Setting the right rent for an investment property sounds simple enough. Look at a few listings, pick a number and put the property on the market. In reality, there is a little more strategy involved.

The goal is not necessarily to charge the highest rent you can imagine. It is to find the price that makes sense for your property, reflects the current rental market and attracts a strong tenant without leaving money on the table.

If you are wondering, “How much should I charge in rent?”, there are several factors you should consider before choosing your number.

Start With the Current Rental Market

The first step is understanding what is happening in the market right now.

Rental markets can change surprisingly quickly. At some points, there may be very few quality rentals available and strong competition among tenants. In that environment, landlords may have a little more room to push the asking rent.

At other times, there may be significantly more inventory available. Tenants have more choices, properties take longer to rent and landlords may need to price more competitively.

Simply knowing the average rent in Ottawa does not tell you enough. You need to understand what is happening with properties that actually compete with yours.

If there are five similar rentals available in your neighbourhood and yours is the most expensive, there needs to be a good reason for it. Maybe your property is renovated, has better parking, includes utilities or offers features the others do not.

Otherwise, tenants may simply choose one of the alternatives.

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Look at What Has Actually Rented

Active listings tell you what landlords are asking. Recently rented properties tell you what tenants have actually been willing to pay.

That distinction matters.

When we help determine rental value, one of the most useful exercises is looking at comparable properties that have successfully rented in the area over the past few months.

Ideally, you want to compare properties with similar characteristics, including:

Property type and size
Number of bedrooms and bathrooms
Neighbourhood and location
Age and overall condition
Parking
Finished basement or additional living space
Outdoor space
Included utilities
Appliances and upgrades
Building amenities for condos

A newer two bedroom condo with underground parking, a gym and concierge service could command a very different rent than an older two bedroom apartment a few streets away.

The same applies to houses. A renovated townhouse in Orléans may rent very differently than an older townhouse of roughly the same size depending on location, finishes, parking and overall condition.

Should You Push the Rent or Price Competitively?

This is where strategy comes in. If rental inventory is low, comparable properties are leasing quickly, and your property shows extremely well, it may make sense to test the upper end of the market.

But pushing the rent too far can backfire.

Imagine you want $2,900 per month, but the realistic market value is closer to $2,750. If the property sits vacant for a month while you wait for someone to pay the higher price, you have lost $2,750 in potential rent.

It would take a long time to recover that loss through the extra $150 per month. That does not mean you should automatically price below market. It simply means vacancy needs to be part of the calculation.

Sometimes the best financial decision is getting a strong tenant into the property quickly at a competitive market rent rather than holding out for every possible dollar.

Know Your Costs as a Landlord

Another important part of budgeting as a landlord is understanding what the property actually costs you.

Your mortgage payment is only one part of the equation. Depending on the property, your expenses could include property taxes, condo fees, insurance, maintenance, repairs, utilities, property management, snow removal, landscaping and periods of vacancy.

You should also plan for larger expenses that do not happen every month.

A furnace, roof, appliance or air conditioner will eventually need to be repaired or replaced. Those costs should be considered when evaluating whether an investment property makes financial sense.

When learning how to calculate rental income, look beyond the monthly rent cheque. Calculate your gross annual rental income and then compare it with the total annual cost of owning and operating the property. That gives you a much more realistic picture of the investment.

Your Costs Do Not Determine Market Rent

There is an important distinction here. You absolutely need to understand your expenses but those expenses do not necessarily determine what you can charge.

If your mortgage, taxes and other expenses total $3,000 per month but comparable properties are renting for $2,700, you cannot simply charge $3,000 because that is what you need to cover your costs. The market determines rental value. Your costs determine whether the property works as an investment.

This is particularly important when purchasing an investment property. Estimating realistic rental income before buying can help you avoid discovering afterwards that the numbers do not work as well as expected.

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Every Rental Property Is Different

There is no single formula that tells every Ottawa landlord what to charge. Rent can vary dramatically based on the product, neighbourhood, age, condition and amenities.

Even two nearly identical properties can rent for different amounts depending on presentation, timing and competition when they hit the market. That is why the best approach is to combine recent comparable rentals, current competition and a complete understanding of your expenses.

And if you are unsure where your property fits in the Ottawa rental market, our team can review the recent rental activity and can give you a much clearer picture of what tenants are actually willing to pay. Reach out to us today!