How to determine Fair Market Rent

A key factor in keeping a property rented and profitable is learning how to determine fair market rent (FMR). Unfortunately, this is an area where many landlords falter. Generating cash flow means your rental income should be high enough to cover operating expenses and still make you a profit. But many new landlords don’t know how to price their properties, and either over or under-change. Both have their drawbacks.

What is Fair Market Rent?

When you shop for a specific product, you’ll notice that similar products are priced by the amount of money people are willing to pay. Prices may vary by $10-$20, but typically, there is an average price. Rental housing works much the same way. When tenants search for comparable properties in your neighbourhood and surrounding neighborhoods, they will see the average rental rates or fair market rent.

Think like a tenant

To help you get into a tenant mindset, when you were a renter, looking for a place to live, what was your criteria? I’ll bet you started with price and neighbourhood, then drilled down to the nice-to-have features and benefits like underground parking, an exercise room, a backyard, etc.

Pricing your property within a fair market rent translates into tenants considering your rental price as acceptable…