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5 Tips for Setting Rent for an Investment Property

Rental agreement with pens and keys

  |  By Chris Shanahan, CISP®

The topic of rents can elicit heated conversations in San Francisco where a severe housing crunch means that the city where I live has earned the dubious distinction of being the most expensive city in the country for rents.

What’s happening in the San Francisco market is an anomaly, but discussions about rents and the amount to charge is a decision that many of our clients face. At PENSCO, one of the most popular ways for our clients to hold real estate in their self-directed IRAs is to buy single-family homes with the intention of renting the house to tenants. By renting out an investment property, an IRA can benefit not only from any home price appreciation, but also from a steady income stream in the form of monthly rent checks.

If you own an investment property in your self-directed IRA, how do you determine what rent to charge? You’ll want to ensure you can make a sufficient yield on your investment so it can help you meet your retirement goals.

Rent analysis website Rentometer has a post on its blog offering tips for owners of investment property to consider before setting rents. Here are Rentometer’s five tips:

  1. Stay up-to-date on local economic and business activity in your market. Economic activity is one of the key drivers of housing demand, including rental housing. 
  2. Work with local real estate professionals – property managers, brokers, agents, appraisers and lenders. Local experts can identify the drivers of housing supply and demand that are unique to your market such as jobs, local ordinances and zoning.
  3. Check local apartment listings using the local newspaper, apartment guides, and websites like Craig’s List or Rentometer.
  4. Check your local apartment or rental housing association for research and other information they may provide about local rent levels – past, present and future.
  5. Use “rent per square foot” whenever possible as a benchmark.  This allows you to encapsulate into a single number all the subjective variables of rent and provides a basis for comparison across different units, locations and amenities. 

Rentometer points out that setting rents is subjective and will be influenced by your property’s location, building structure, amenities and age. At PENSCO we want you to have access to the tools you need to make the best decision possible when deciding how much to charge tenants who will be living in your investment property.

If you are an individual investor and you want to learn more about investing in real estate with your self-directed IRA, you can download our guide, Tax-Advantaged Real Estate Investing Guide. If you’re a real estate professional and you want to learn more about helping your clients purchase property using their IRA dollars, please download our guide, Growing Your Real Estate Business Using Retirement Capital

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

PENSCO Trust Company performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. Other than the Opus Affiliates, PENSCO is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.