Joseph Thomas

How to Calculate How Much to Charge for Rent in Utah (2024)

Tue, 11 Apr 2023 14:30:00 GMT

As a landlord, one of the things you need to figure out is how much to charge your tenants for rent. You want to make sure you are getting the most out of your investment and generating positive cash flow, but you can’t charge so much that potential renters pass on your unit for cheaper options.

Charging too low for rent not only means missing out on revenue, but it might also attract lower-quality tenants.

There are a few different considerations to be made when calculating how much to charge for rent. As a property and tenant management company in Utah, here is our guide for Utah landlords.

Based on Property's Value

One method for calculating how much rent to charge is to base it off of your property’s value.

A common rule of thumb in the industry is to settle on a monthly rental charge that is around 1% of the property’s market value. However, the rent amount for a higher-valued property probably needs to be less than 1% in order to attract enough tenants. It’s not uncommon to have good revenue-producing properties charging a monthly rate that is 0.5-.75% of the current market value.

In a normal and stable Utah market, you’ll find that many rental properties charge rent near this range, give or take a bit, but there is no definitive “rule”.

Based on Local Market

Rental markets are not always normal and stable, however. Utah has experienced higher-than-average demand in recent years with housing inventory being stretched thin.

It’s important to be aware of your local market: how much demand there is for rented housing, the quality of your property’s location, how your property size and amenities compare to other nearby options, and the cost of utilities in your area.

Demand

Obviously, higher demand means you can charge more for rent. That’s basic economics. But Utah landlords should closely monitor demand to make sure they understand what is driving it, and how it might be changing in the near future. Even if high demand allows you to charge more for rent, you still need to stay competitive within the local market.

Location

Certain neighborhoods and cities are particularly desirable for renters. Others may be notedly less desirable.

Figure out how your property’s location is perceived, and the amount other Utah landlords are charging for rent in their nearby property.

Elements that might make your location worth paying a higher rent for include:

Proximity to schools, dining, or shopping.
Higher property values and perceived neighborhood quality.
Special views of the city, nature, etc.
Proximity to water, especially water with recreational access.

Property Size / Tenants Per Unit

Multifamily property, where there is a high number of rentable units within the same property, have more opportunities to collect separate rent payments each month. These units can also be rented out to more than one renter at a time, like students who room together.

The size of your property and the amount of tenants per unit play a part in determining how much rent to charge. If each unit needs to make x$ per month in order for you to have the cash flow you need, that number can be divided up among multiple tenants per unit.

You’ll need to calculate not only how much rent payment you need the property to produce overall, but also what percentage of that amount will be reasonable for charging each individual tenant.

Utility Costs

Consider how much utilities cost on average for your property and work that into your calculations. You need to charge enough rent to cover utility costs while still making a worthwhile profit.

Based on Mortgage and Other Overhead Costs

No matter how much you feel your market will allow you to charge for rent, it won’t matter if it’s not enough to cover mortgage payments or any other overhead costs that come with owning the property.

At a very minimum, you should at least be charging enough rent to pay your mortgage with.

Consider What Ideal Tenants Will Pay

Don’t just set your rent rate for what you think most renters will pay, and call it done. Instead, consider who your ideal tenant is, based on your property class and investment strategy.

If you want the most stable and reliable tenants that are most likely to rent long-term, then you will probably set the rent higher (within the range of your local market) than you would if you were planning on renting to tenants in a low-income neighborhood, which are more transient.

But if you charge a rent that is too low for what your property could yield, you may attract tenants that don’t fit your ideal strategy.

Consider Seasonality

The amount you charge for rent may fluctuate seasonally.

In Utah, this is especially true for student housing property; rent is usually higher in the fall and winter months, when demand is higher and supply is lower. Then the rates drop for summer months when less students are living near campus, so demand is lower.

Assess Value of Amenities

Certain amenities may be rent-boosting features. But this only applies to amenities that are highly-valued by most tenants generally.

Some examples of amenities that might allow you to charge a little more for rent each month include things like pool/spa, heated/covered parking, on-site gym, dog park, on-site restaurant, special service, etc.

No Rent Control Laws in Utah

As mentioned before, Utah is not a rent control state. That means that the government does not regulate how much landlords charge for rent.

The government can still enforce anti-discrimination laws, however, which may include charging unequal/unfair rent amount based on discriminatory factors.

Experts in Utah Rental Markets

Our team at Joseph Thomas has years of experience managing our own Utah properties and those of our landlord clients.

We help Utah property owners set competitive rental rates and efficiently manage tenants for long-term success and revenue. If you’re ready for a property management partner to make your life much easier, let’s talk !

FAQs

What about rent control?

Some states (not Utah) have rent control laws, which regulate how much rent can be charged. If you own rental property in a rent-control state, you’ll need to adhere to those local regulations.

What are the 1% and 2% rules?

The 1% rule and 2% rule in real estate serve as rough guidelines for determining how much rent to charge, but they should not be used as hard-and-fast rules. For most markets in today’s world, these rules seem to be a little out of date. It’s more important to research your specific market and consider the elements covered on this page.

Joseph Thomas does not provide legal, tax, or investment advice. We recommend the reader consult their attorney, accountant, and/or financial advisor before making any personal investment decisions.

Investment Property Types Ranked by Risk Level

Fri, 24 Feb 2023 15:48:00 GMT

As a rental property investor, choosing the right investment property is crucial to ensure your success. There are various types of investment properties available in the market, each with their own level of risk.

It is important to understand these risks to make informed decisions about where to invest your money. Below, we rank different investment property types by their risk level and provide insights into each of them.

Understanding Investment Property Risk

It is essential to understand the concept of investment property risk itself and the types of risk.

Investment property risk refers to the likelihood of losing your investment or not getting the expected returns due to various factors such as economic conditions, property location, and tenant quality.

The risk level of an investment property is dependent on its type, location, current state of the economy, market demand, and more. In general, the higher the potential returns of an investment, the higher its risk level. However, there is no guarantee that higher risk will always lead to higher returns.

#1 Raw Land (Highest Risk)

Raw land is the riskiest type of investment property, as it has no income until it is developed or sold. Investors must conduct extensive research to determine the land's potential for future development, which can take years or even decades. Raw land investments can yield significant returns, but they require more time, effort, and resources to achieve.

Investing in raw land isn’t a bad idea, but we typically do not recommend it for inexperienced property investors.

#2 Vacation Rentals

Vacation rentals can be a lucrative investment opportunity but come with higher risk levels due to seasonality and economic volatility. They are also subject to changes in tourism trends, and the property must be maintained to attract guests continually. As such, investors must do their research and assess the location's market demand before investing in vacation rentals.

#3 Commercial Property

Commercial properties include office buildings, retail stores, and warehouses where tenants rent the space for commercial purposes (not to live). These types of investments can offer high returns but also come with some risk related to the uncertainty of market demand, tenant quality, and economic conditions.

#4 Multifamily Property

Multifamily property , also known as apartment buildings or complexes, are slightly more risky than single-family homes but are relatively low-risk and can offer higher potential returns. Our team at Joseph Thomas has lots of experience managing multifamily property of our own.

The risk level varies depending on the number of units in the building and the location. In general, larger complexes in high-demand areas have the potential for greater returns but also come with higher risk levels.

#5 Single Family Property (Lowest Risk)

Single family properties are usually the least risky investment property type. They are typically less expensive and easier to manage than other property types, making them ideal for first-time investors.

Single family homes are also in high demand in most markets, making them an excellent investment opportunity for investors looking for stable long-term returns.

Utah Property Management with Joseph Thomas

Understanding the risk level of an investment property is crucial to make informed decisions and minimize potential losses. No investment comes without any risk.

It's essential to carry out your due diligence in deciding how to invest in rental property in a way that aligns with your investment goals and risk tolerance.

One great way to help ensure a smooth and profitable real estate investment is to use an experienced property management partner. Our team of pros can handle all of your Utah property management needs . Give us a call!

What is the 2-out-of-5-years rule?

Thu, 07 Jul 2022 14:52:00 GMT

The “2-out-of-5-years rule” is a rule related to the criteria that must be met in order for a property investor to avoid or reduce capital gains ...

Avoiding Capital Gains Tax

To understand the 2-out-of-5-years rule, you need to understand the desire for property owners to avoid or reduce taxes owed when they sell a property.

To avoid paying more than they have to in taxes, many property investors take advantage of opportunities such as the 1031 exchange process or “home sale exclusion” tax breaks. The 2-out-of-5-years rule is one of the criteria that must be met in order to qualify for the home sale exclusion.

The 2-out-of-5-Years Rule Explained

When selling a primary residence property, capital gains from the sale can be deducted from the seller’s owed taxes if the seller has lived in the property themselves for at least 2 of the previous 5 years leading up to the sale.

That is the 2-out-of-5-years rule, in short. But, there are some important details to keep in mind, so keep reading!

Primary Residence vs Investment Property

The reason the 2-out-of-5-years rule exists is because the home sale exclusion tax break is only applicable to the sale of a primary residence. In order to be legally considered a primary residence, as opposed to an investment property, is that the seller has lived in the property themselves for at least two out of the last five years.

Do the 2 years need to be consecutive?

The two years of on-site residency do not need to be consecutive. For example, a property owner might live in a house for a year, then move and rent it out for 3 years, then move back in for another year before selling; the property would still qualify as a primary residence.

The seller does not need to be living in the property at the time of sale in order to claim the home sale exclusion. They just need to have lived there for a minimum of two out of the last 5 years.

How much capital gains tax can I exclude?

The amount of capital gains that can be excluded is dependent on your tax filing status.

For those filing single, up to $250,000 in capital gains can be excluded. For those filing jointly, the limit is $500,000.

What about vacation rental property?

According to the 2-out-of-5-years rule, property that you lived in for at least two out of the last five years counts as a primary residence, even if you have considered it a vacation rental.

In order to be a true vacation rental property and not a primary residence, according to the tax code, the property would have to be rented out/not lived in by the owner for more than two of the previous five years.

How often can I claim the home sale exclusion tax break?

While there is technically no limit to how often the home sale exclusion can be claimed (every time a home is sold), the qualification of having lived in a property for at least two out of the last five years means that an individual couldn’t claim the tax break more than once every 2 years.

Exceptions to the rule

In this guide, we have outlined the basic features and requirements of the 2-out-of-5-years rule, but there are some exceptions to the rule in special circumstances.

Toward the end of this blog post by Clay Schmidt at Realized , he lays out some of the special situations in which some capital gains might still be excludable even if the 2-out-of-5-years rule isn’t exactly met the way we’ve outlined it in this guide.

Need Property Management in Utah?

The more complex your real estate portfolio, the more beneficial it can be to have a professional property management partner.

If you’re ready to streamline your property ownership in Utah, the Joseph Thomas team has the services you need

Emotional Support and Service Animal Laws in Utah

Wed, 29 Jun 2022 14:08:00 GMT

For anyone renting to tenants in Utah, it’s important to be aware of current laws regarding emotional support and service animals.

This is a Utah landlord’s guide to animal laws to help you decide on your policies.

Definition of an Emotional Support Animal in Utah

Emotional support animals, often dogs or cats, help people with mental illnesses such as depression or anxiety by providing comfort or support.

Emotional support animals (ESAs) are not trained to do special tasks like service animals. ESAs are not permitted to be in public places where pets are prohibited.

The designation of an animal as an ESA is not something a renter can claim for themselves independently. Official ESAs must be prescribed and designated as such by a licensed mental health professional (see “ESA Letter” below ).

Emotional Support Animal (ESA) Letter

For a pet to be considered an emotional support animal under Utah law, the handler must have an official ESA Letter from a licensed mental health professional.

Mental health professionals have screening measures to help determine if an individual qualifies for an emotional support animal.

ESA’s have less rights than service animals, and are not covered under the American Disability Act.

Definition of a Service Animal in Utah

Service animals are animals that are trained or are being trained to provide some sort of service or carry out specific tasks for a person with a disability. Service animals must be permitted public accommodation with their handler.

Although some animals such as miniature horses can sometimes be used as service animals in some states, only dogs may qualify as service animals under Utah disability rights law.

Service dogs in Utah may be trained for tasks such as helping the deaf, blind or visually impaired, or seizure prone. There are also dogs that are specially trained to alert their handlers about the presence of dangerous allergens or to help with psychiatric services such as preventing self-harm, reminding handlers to take medication, or providing calming measures during psychological distress.

Service animals are protected under the American Disability Act.

Fair Housing Act

Under the federal Fair Housing Act, Utah landlords may not discriminate against those who require the use of service animals or emotional support animals, although Utah only recognizes dogs as service animals.

This means that people with service animals or letter-certified ESAs must be allowed equal access to rented property, they cannot be charged extra for having the animal, and “no pets” requirements in lease agreements do not apply to their animal.

Utah tenants with service animals or ESAs are still responsible for any damages made to the property by their service animal.

An exception to the Fair Housing Act ( R608-1-17 ) allows landlords to deny accommodations for emotional support animals if the animal has demonstrated a threat to the health or safety of others, and the owner does not take effective action to control it.

Defining “Disabled”

Utah landlords are not authorized to declare whether or not any individual is disabled or has need for a service animal or emotional support animal.

Mental health and medical professionals prescribe the use of service animals or emotional support animals according to their assessment of patient needs.

In general, the need for a service animal or ESA may be assessed for any individual who’s physical, mental or emotional function is limited beyond normal ranges (impedes day-to-day functions) and would be helped by using either a specially-trained service animal or simply the emotional support of an ESA.

Defining “Reasonable Accommodations”

Reasonable accommodations are any adjustments made in order to allow a tenant with a disability to use and enjoy their home as much as any other tenant.

Under the Fair Housing Act, allowing a service animal in a rental property that normally does not allow pets would constitute a reasonable accommodation that must be provided.

Misrepresenting an Animal

Under Utah law, misrepresenting a pet as a service dog is a Class B misdemeanor, resulting in up to 6 months in prison or a fine of up to $1,000. In 2019, the Utah legislature moved to make misrepresenting an ESA a misdemeanor as well.

Landlords Owning Fewer Than 4 Units

When it comes to providing reasonable accommodations for service animals and emotional support animals under the Fair Housing Act, Utah landlords owning fewer than 4 rental units, and do not use a broker or agent, may be exempted.

ESA on University Campus Housing in Utah

University campus housing is under the same Fair Housing Act requirements as other types of housing, but ESAs permitted in campus housing may be restricted from other places on campus.

Service animals must be allowed access anywhere that their handler is allowed access.

Property Management Help in Utah

Policy for service animals and emotional support animals is one aspect of tenant management and Utah law that many property owners may not think about until the situation arises.

At Joseph Thomas, we have years of experience managing our own tenants and helping clients manage theirs. We help prepare landlords and make sure they are compliant with all Fair Housing Act regulation and other Utah laws regarding landlords and tenants.

Let us show you how our property management services make investment real estate successful.

Joseph Thomas does not provide legal, tax, or investment advice. We recommend the reader consult their attorney, accountant, and/or financial advisor before making any personal investment decisions.

Emotional Support and Service Animal Law FAQs

Do no-pet policies apply to Emotional Support Animals or Service Animals in Utah?

No. Even for Utah property that normally does not allow pets, service animals and officially-recognized ESAs (with ESA letter) must be allowed, unless the animal poses a real threat to the health and safety of others, or the wellbeing of the property.

When can a Utah landlord deny an Emotional Support Animal or Service Animal on their property?

Official service animals cannot be denied on any property where the service animal handler is allowed to be.

Emotional support animals can be denied property access if they have been shown to present a real threat to the health or safety of others and the handler has not been able to take effective action to control the threat.

Can a landlord charge more for an Emotional Support or Service Animal in Utah?

No, this would be considered discrimination according to the Fair Housing Act. However, tenants are responsible for any damages caused by their animal, and may even be evicted if they fail to prevent damages or do not clean up after their animal.

Charging Late Fees

Fri, 04 Mar 2022 15:49:00 GMT

Charging Late Fees: Utah Property Owner's Guide

Most landlords include some sort of late fee policy in their lease agreements in order to help ensure that tenants pay rent on time and in full. But each state has their own laws and regulations about late fees and how they can be utilized.

This is the complete guide to late fees for real estate investors owning property in Utah.

When Can Landlords Charge Late Fees in Utah?

The state of Utah allows landlords to charge late fees when rent is not paid on time, according to the agreed upon terms of the lease.

Is there a legal requirement for late fees in Utah?

Landlords in Utah may not charge late fees that are more than 10% of the agreed upon rent amount, or greater than $75.

The late fee policy must be outlined in the agreed upon lease terms in order to be legally enforceable, unless the rental agreement is month-to-month, in which case a 15-day notice of the charge is required.

Does Utah law require a grace period?

No, there is no grace period required in Utah. This means that landlords may choose to charge a late fee as soon as rent is past-due. However, a grace period may be outlined in the lease terms if the landlord chooses to do so.

Why You Might Consider a Grace Period

Grace periods allow for normal occurrences such as money being delayed in transit, tenants receiving their paycheck on the same day rent is due, due dates falling on a holiday or weekend, or rare occurrences when a tenant has to pay a day or two late.

While tenants should not expect to be able to always pay within the grace period, having one in place accounts for occasional things that don’t need to be addressed with official notices or burdensome late fees.

What about weekends and holidays?

Utah landlords should make it clear in their lease agreement what is expected when the rent due date falls on a weekend or holiday. As a general rule, most landlords allow rent to be paid the next business day following the weekend or holiday without being considered late.

We recommend this as a best practice. However, Utah landlords are not required by law to adhere to this standard.

What about partial rent payments?

The decision on whether or not to accept partial rent payments at all is somewhat debated in the property management industry. At Joseph Thomas, we believe there can be instances where it makes sense to accept partial payments.

If you choose to accept them, a partial payment is still not a full rent payment, so the tenant can still be subject to late fee charges. If left unpaid, eviction may still be a legal consequence. Your chosen policy regarding partial payments should be outlined in the lease agreement.

*Note: partial rent payments as described here are different from prorated rent payments, which are agreed upon by both landlord and tenant, and would not incur late fees.

How Much Can Landlords Charge for Late Rent in Utah?

As of May 2021 , Utah landlords cannot charge a late fee that is more than 10% of the agreed upon rent or greater than $75.

At Joseph Thomas, our recommendation is to set late fee amounts in consideration of your local market, the type of renter and lease agreement you are after, and how willing you are to potentially go through the process of evicting a tenant that cannot pay rent in full, plus fees.

Types of Late Fees

For landlords that decide to charge late fees, there are a few different ways to go about it.

Tip for Utah Landlords

Even if your late fee charges are within the legal range, a court may still find a late charge unreasonable. Utah property owners should take the time to figure out what late fee amounts would be reasonable for their market.

Notifying Tenant When Rent Payment is Late

Your lease should clearly explain when/how rent is considered late (postmark date, payment actually received, etc?). When the rent payment is actually late, the first step is to notify the tenant.

It’s a good idea to get on the same page with your tenant as soon as possible. Perhaps they thought they paid, but there was an error in the system, or you made a mistake. Or maybe they are aware they are late, but they are waiting on some money and can tell you exactly when they will be able to pay, including late fees.

Notify the tenant and collect any contextual information available to help you decide how to proceed.

How Should Landlords Collect Late Fees?

Setting up online rent payment is a great idea for a number of reasons, including the fact that late payments can be automatically calculated into the system. Tenants can easily see the full amount owed, and be required to pay in full before the charge is cleared.

If you choose to collect rent payments or late fees by mail, be sure to keep the envelope that payment comes in, with the postmark and date received clearly indicated. If a tenant wants to dispute a charge later, you’ll have evidence of when it was actually sent.

If Your Tenants Consistently Pay Late

It’s not out of the ordinary for good tenants to occasionally have a late payment once in a while. That’s why grace periods are a good idea.

But for renters who consistently pay late, landlords should address the issue with them directly, so they don’t think that late payments can be an expected pattern.

You can explain to renters that rent payments are used to pay the bills that you owe on the property, like utilities and mortgage payments, which are also due at a certain time. You should have the payment schedule clearly outlined in the lease where you can point the tenant back to to re-establish expectations.

Be willing to listen to the concerns of your tenants. Perhaps they want to always pay rent on time, but there is an issue with rent being due on the first of the every month, and they could easily pay on time if it was changed to the 5th of every month. There may be something you can work out together.

If a Tenant Still Doesn’t Pay

If a tenant who is late on rent still doesn’t pay, then there are some choices to make as landlord.

While you have the right to begin a residential eviction process based on non-payment of rent, this may not always be the best choice, especially if the tenant hasn’t made a habit of missing payment due dates, or they are going to be difficult to replace in the current market.

Landlords need to decide if it is better to let late fees build up and continue to seek payment from the tenant or begin the eviction process. To help make this decision, we recommend consulting your legal counsel.

Important Things to Remember

Always be aware of local laws regarding tenant-landlord agreements and regulations on things like grace periods, late fees, etc.

Remember that real estate investing is the most rewarding when you can maintain a positive relationship with tenants built on mutual understanding and trust.

State Things Clearly in the Lease

Whatever your policy is when it comes to late fees, grace periods, payment methods, etc., these details should be clearly outlined in the lease or rental agreement.

Be Consistent

Late fee policy must be applied consistently across all cases, otherwise tenants may have grounds for accusing you of discrimination. It can be difficult sometimes to remain firm on policy for a tenant you want to help, but you need to remain consistent.

Waiving Late Fees: A good idea?

We at Joseph Thomas do not advise our Utah property owners to waive late fees.

Again, this can be difficult in situations where landlords feel sympathetic to tenants who are struggling. However, waiving fees opens the door to potential accusations of discrimination by other tenants, or conflict down the road when the same tenant expects fees to be waived again.

Tenant Management Services in Utah

Joseph Thomas serves Utah property investors in managing their property and handling tenant management duties such as rent collection.

Let us know how our property management services can make your real estate investing run smoother. We’re ready to get to work for you!

Joseph Thomas does not provide legal, tax, or investment advice. We recommend the reader consult their attorney, accountant, and/or financial advisor before making any personal investment decisions.