Learn how to calculate rental rate with the 2025 formulas. Use them to maximize your rental profits and understand mistakes to reduce vacancy risks.

How to Calculate Rental Rate: 2025 Formulas Landlords Should Know

Landlords must know how to calculate the rental rate. Different calculations in 2025 enable landlords to determine the value of their property and set the optimal rent. These 6 formulas are a 1 percent rule for a rental property, 0.8% to 1.1% rule for rent calculation, a rental yield calculation, a property value rent calculation, a 50 percent rule for rental property, and a gross rent multiplier (GRM). They have different roles in helping them calculate and adjust the rental rate.

LeaseRunner’s article will explain the formulas, factors that affect the property’s rent amount, and guide you to use them effectively.

Alt: How to calculate rental rate step by step for landlords

What is the Rental Rate?

The rental rate is the monthly rent that a landlord charges tenants to use a property. The landlords need to calculate it to evaluate their investment’s profitability.

The rental rate can vary depending on several important factors. These include the property’s market value, the current demand for rentals, and the maintenance costs.

Benefits of Using Rental Rate for Landlords

By using clear rental formulas, the landlords can maximize their rental investment profit. When the rent matches the property’s value and the market, they have higher chances of finding reliable renters.

The formulas for calculating the rental rate have different functions. The 1 percent rule for a rental property helps landlords get a quick rent estimate. The 0.8% to 1.1% rule rent calculation indicates the adjustment amount they should make in rent based on the home value.

While the rental yield calculation shows yearly profits, the property value rent calculation lets rent follow market values. Besides, landlords can use the 50 percent rule for rental property to plan expenses, and the gross rent multiplier (GRM) to measure rent versus price. These steps help landlords earn well and keep renters happy in 2025.

Also, methods like the gross rent multiplier (GRM) help landlords compare potential income across properties.

Services like LeaseRunner offer tools that simplify rent calculations and tenant screening. These resources help landlords set fair rents and choose tenants who pay on time. This makes managing rental properties easier and more profitable. This clear approach to calculating rental rate builds stable income and long-term success for landlords.

4 Most Popular Methods to Calculate Rental Rate (With Examples)

Setting the right rental rate is key to a successful rental business. Landlords use several trusted methods to price monthly rent fairly while covering costs and earning a profit. Below are four popular formulas landlords rely on in 2025.

The 1% Rule for Rental Property

The 1 percent rule for rental property is a simple formula that landlords use to estimate the rent at ease. The rule states that the monthly rent should be about 1% of the property purchase price plus the repair costs. It is primarily used to quickly get a rough idea as to whether or not a property can provide a positive cash flow.

For example, let's say that you purchased a home for $200,000 and spent $10,000 on repairs. Then you would add the two values together to get your total cost of $210,000. Then multiply this total amount by 1%:

$210,000 × 1% = $2,100

This means the rent should be around $2,100 per month to cover expenses and mortgage payments. The 1% rule works well for fast checks, but doesn’t consider local market rents or ongoing expenses like taxes. Landlords should adjust the rent after reviewing these factors.

The 0.8% to 1.1% Rule for the Rent Calculation

This rule allows for flexibility with the rent range, taking the value of the property, property condition, location of the property, and demand into consideration.

Rent is typically in the range of 0.8% to 1.1% of the value of the property every month. As an example, if the property value is $300,000, then the monthly rent may range:

Low end: $300,000 × 0.8% = $2,400
High end: $300,000 × 1.1% = $3,300

A landlord might charge towards the high end if the property recently had upgrades or is in a sought-after neighborhood. This range gives more control than one fixed percentage and helps tune rent to local market shifts.

The Rental Yield Calculation

The rental yield calculation measures how much rental income a property produces compared to its value. It’s a popular metric for judging investment profitability.

There are two types:

Gross rental yield, which is the total yearly rent divided by the property value.
Net rental yield, which subtracts operating expenses like repairs, taxes, and vacancy costs.

For example, if a property worth $250,000 earns $18,000 a year in rent:

Gross yield = ($18,000 ÷ $250,000) × 100 = 7.2%

If expenses total $3,000 annually, net income drops to $15,000:

Net yield = ($15,000 ÷ $250,000) × 100 = 6%

Landlords use these figures to check if rental income justifies their investment and adjust rent or expenses to improve returns.

Property Value Rent Calculation

This method links rent directly to a property's current market value. Landlords charge rent as a percentage, often between 0.8% and 1.1%, adjusting with value shifts over time.

For instance, if a home was worth $200,000 last year and now is valued at $220,000, the rent under this system would rise accordingly. If charging 0.9% of the value:

Last year rent: $200,000 × 0.9% = $1,800 Current year rent: $220,000 × 0.9% = $1,980

This ensures rent stays aligned with property appreciation or market trends, protecting landlord income over time.

Supporting Calculations for Better Investment Decisions

When calculating rental rates, it's vital to consider supporting calculations. These tools give landlords sharper insight into the overall financial health of their investment. Two popular and useful methods include the 50 percent rule for rental property and the gross rent multiplier (GRM). Both help landlords estimate expenses, cash flow, and returns efficiently.

The 50 Percent Rule for Rental Property

The 50 percent rule suggests that about half of your rental income will go toward operating expenses. These expenses include property taxes, insurance, maintenance, repairs, utilities, and property management fees, as well as potential vacancy costs. This rule excludes mortgage payments, income taxes, and depreciation.

For example, if a property brings in $2,000 in monthly rent, expect roughly $1,000 to cover these ongoing costs. If your mortgage payment is $800, your projected monthly cash flow is: $2,000 (Rent) - $1,000 (Expenses) - $800 (Mortgage) = $200

This 50 percent for rental property helps investors quickly gauge cash flow and avoid surprises. It is especially handy for screening several properties fast without digging into detailed expense reports.

The Gross Rent Multiplier (GRM)

The Gross Rent Multiplier compares a property's purchase price to its total annual rental income. A low GRM often indicates a better investment opportunity because it means you recover your purchase price quicker through rent.

Calculate the GRM by dividing the purchase price by the annual rental income: GRM = Property Price / Gross Annual Rent

For example, a property priced at $300,000 that brings in $30,000 a year in rent has a GRM of: 300,000/30,000=10

A GRM of 10 means the property price equals ten years of gross rental income. Landlords often use GRM to compare different rental investments quickly. When combined with the 50 percent rule, rental property landlords get a clearer picture of expected net income and overall investment efficiency.

Using these two calculations together helps landlords estimate realistic profits, manage risks, and make better investment choices in 2025 and beyond.

Consider These Factors to Choose the Right Calculation

Besides choosing the best way to calculate the rental rate , landlords should consider other factors when setting the rent. They include property conditions, local market demand, competitors’ prices, rent control laws, and vacancy risk. If the tenant finds your rental prices higher than your property’s value or the market average, they won’t rent from you. It’s even worse that you break local rent control laws, leading you to legal problems.

1. Property Conditions

The state of a rental home affects how much it can earn. A modern property with new appliances and fresh paint supports higher rent using the 1 percent rule rental property or the 1.1% property value rent calculation.

For example, a $350,000 townhouse in great shape may rent for nearly $3,850. The same property needing updates may rent closer to $2,800 using the 0.8% rule rent calculation.

2. Profitability from Property Investment

Profitability depends on costs like mortgage, taxes, and repairs. The 50 percent rule rental property notes that half of the rental income often goes to these expenses. With $2,500 rent, about $1,250 covers costs, leaving $400–$600 net.

3. Local Market Demands and Tenant Quality

Seasons and location change demand. In summer, rents may lean toward the high end of the 0.8% to 1.1% rule rent calculation. For tenants, this often means they need to meet specific financial criteria, such as the widely accepted standard of their income being at least three times the rent. Tools like LeaseRunner’s tenant screening help select creditworthy renters, lowering vacancy risks.

4. Competitors’ Rental Prices

Comparing nearby units prevents overpricing. If two-bedroom homes rent for $1,800–$2,000, landlords should stay in that range to keep demand steady.

5. Rent Control Laws

Some cities limit rent increases. Landlords must research rent control rules to avoid disputes and legal penalties.

6. Vacancy Risk

Vacancies lower profits. Landlords should adjust the gross rent multiplier (GRM) with a 5% vacancy rate to reflect real income.

Step-by-Step Guide to Calculating the Rental Rate

Calculating the rental rate requires a thorough but structured approach. Following clear, practical steps helps landlords price rentals fairly and profitably.

Step 1: Determine Your Property’s Condition and Value

Evaluate the property's current market value and condition. Appraisal services or reputable online resources can give you accurate pricing. Assess any repairs that need to be done and how appealing it is to tenants.

Step 2: Use a Rental Rate Formula

You will want to select and use one of the accepted rental rate formulas, like the 1 percent rule, using a calculated rate between 0.8 percent and 1.1 percent of the value of the property, rental yield calculations, or rental rates on a per property value basis, based on your strategy and the market.

Step 3: Adjust Based on Tenant Profile and Seasonal Trends

Make changes based on seasonal demand from tenants or price per square foot of listed rental properties within your reach. As you review their profiles, you'll need to know how to pass a rental credit check, as landlords will be looking at that and other key criteria in their review.

Screening quality tenants ensures rental income remains stable, such as LeaseRunner’s services to analyze and review credit without extra steps.

Step 4: Annual Review and Re-adjustment of Rent

The market is dynamic while your property value changes every day due to the increase in living costs and property costs. Therefore, you need to re-adjust the rent annually to satisfy the market demands. This reduces vacancy rates and stabilizes your income. In addition, make sure to stay in compliance with legal tenant rent controls.

Common Mistakes First-Time Landlords May Make

Many new landlords face common pitfalls. Resolve those mistakes to avoid legal issues and reduce vacancy risks.

Ignoring Hidden Costs

Neglecting expenses, including insurance, repairs, vacancy, and management fees, leads to overestimated profits. The 50 percent rule for rental property helps prevent this error.

Sticking to One Rental Rate Formula

Only relying on a single method can miss market nuances. Using combined approaches, including rental yield calculation and gross rent multiplier (GRM), offers a fuller picture.

Exceeding Local Rent Increase Limits

Not adhering to statutory limits results in legal issues and tenant disputes. Stay informed about rent control and adjust formula applications accordingly.

Conclusions

Understanding how to calculate a rental rate helps landlords set rent that is fair and profitable. The 1 percent rule rental property and the 0.8% to 1.1% rule rent calculation are easy checks to see if rent will cover costs. Using the rental yield calculation or gross rent multiplier (GRM) gives a quick way to compare homes.

Owners can also use the 50 percent rule for rental properties to track repair, tax, and utility costs. Local market checks and property condition reviews enhance the accuracy of the result. LeaseRunner adds support for tenant screening and rent tools.

LeaseRunner’s credit check service can provide a comprehensive analysis of a potential tenant, giving you the detailed financial information you need to make a confident decision. These steps guide landlords to steady income and safer rental growth in 2025.