Setting the Rent For Your Condo

Learn the factors you should consider when figuring out what to charge tenants.
By: LAUREN BAIER KIM: The Wall Street Journal Online
Question: I have two condominium units that I'm planning to let. How do I go about figuring out what to charge and how much I can increase the rent every year? I do not want to go through a real-estate agent, since I would have to pay a month's rent in fees.

-- Natasha D'Souza, North Bergen, N.J.

Natasha: Take a look at your local paper. The classifieds will show what other landlords in your area are charging for rent. Look at rates for condos like yours. "Find ones that are closest in quality, floor plan, etc., and charge accordingly," says Leonard Zumpano, executive director of the Alabama Real Estate Research and Education Center at the University of Alabama. Note that condos on higher floors get better rates, and, in your area, units with Manhattan-skyline views could command a premium. You want to get the best rates for your units and rents that the housing market can support.

The rent you collect should cover the properties' operating expenses (e.g., mortgage payments and maintenance costs). "Don't be afraid to cover yourself and make sure that you get the best deal," says Rob Hill, author of "What No One Ever Tells You About Investing in Real Estate" (Dearborn Trade, 2004).

If there are other landlords in your buildings, talk to them, or if the buildings have one, contact the property manager or rental agency. There is likely to be one if many condos in your units' buildings are investor owned, Prof. Zumpano says.

If you don't mind using subterfuge, you can phone area property managers and say you are considering hiring someone to look after your units. Ask what rents they suggest charging. They probably will oblige. "It is free advertising for them," Mr. Hill says. "It doesn't take that long for them to give you a comparable price."

You'll need to register your units with the town before getting a tenant. New Jersey law requires you to do so. Some New Jersey municipalities have rent-leveling ordinances (which limit how much you can raise a unit's rent a year), so check into this as well.

North Bergen's rent-leveling ordinance restricts yearly rent increases to 2.5% of the previous year's base rent. To up the rent, you must submit a written application to the town's rent-control board and provide your tenants with written notice of the increase. You can purchase a copy of the rent-leveling ordinance in the borough clerk's office. There are some exceptions to the ordinance -- see North Bergen's rent-control Web site for more information.

This kind of rent-leveling ordinance makes it even more imperative that you get a good rental rate from the start. "If she starts out at $600 and later finds out that she should have charged $900, she won't get to $900 for a couple of years," says Patricia Reeves, president of The Garden State Real Estate Investor Association (GSREIA).

Ordinances like these can be complicated, so you might want professional advice. "She should consult a qualified attorney who is familiar with rent control and rent regulations in her municipality," suggests Bruce Gudin, counsel to The Property Owners Association of New Jersey, a group of apartment owners, managers and other real-estate professionals.

A good source on issues affecting New Jersey landlords is the publication, "Tenants' Rights in New Jersey." A free copy is available online from the nonprofit organization, Legal Services of New Jersey.

If your buildings have condo associations, consult with them before letting out your units. These associations might have bylaws that regulate whether you can rent out your property, plus the rates you can charge. "Sometimes there are limits," Ms. Reeves explains. "If it is a $900 building, they don't want a $400 rental in it."

Consider joining a real-estate investors club like GSREIA. You can find a list of New Jersey-based investment clubs at http://www.creonline.com/real-estate-clubs/nj.html. At these clubs, get advice and feedback from other investors and attend seminars on various real-estate subjects.

-- Ms. Kim is a senior editor at RealEstateJournal.com. June Fletcher is on book leave. The "House Talk" column appears most Fridays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.