Investing in Real Estate – How to Determine Rental Rates For Your Deals
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The real estate deal analysis I do is heavily dependent on the income each property produces. This means that I need to know how much rent a particular property can command. If you have been investing in one market for decades, then determining fair market rent for a property based on the number of beds, baths and its neighborhood is almost second nature. But, what if you are like me: looking at deals from hundreds of real estate investors and wholesalers in over 250 US markets? Or, what if you are a brand new investor trying to figure out what rent should be in a particular neighborhood in your market?
Well, with the hundreds of deals that come across my desk each week, I have had to come up with quick and easy systems for determining fair market rent for a property in an area that I am not very familiar with. That is what I will be discussing today.
Before I get started though, I’d like to share with you two things: a note and a warning.
Here’s the note: rents are not fixed numbers even for the same house. There are lots of factors that go into what rent a particular property can get including condition, flexibility, term, your application process (or lack thereof) and more. Is it possible to get $1,195 per month for a property where fair market rent is about $895? Yes, I’ve done it. Is it possible to rent a property for $695 when fair market rent is really $895? Yes, and I know many landlords that haven’t raised rents in a while that are doing that too. So, when you do your research to determine what rent should be, realize it is going to be a range of numbers and not a single number.
Here’s the serious warning: the tools I am about to share with you should NEVER replace the opinion of a very competent professional like a property manager, who manages lots of property in your area. If you do not feel comfortable with your knowledge of the rents in a particular neighborhood, you should always get the advice of a competent professional that does. The tools I am going to share are great ways to get a quick feel for market rents, but should NOT form the basis of your decisions. With that out of the way, here are the on-line tools I use to determine fair market rents for a property that I am analyzing.
First, try using a service like Rent-o-meter to see what it thinks fair market rent is. Their analysis uses the rents that other, similar properties around yours are getting. This gives you quick access to a range of rent values, but, like other automated tools, I have seen these numbers unrealistically high and unrealistically low.
Second, the Department of Housing and Urban Development, a US government agency, puts out a report showing what Fair Market Rents are for properties by number of bedrooms and US city. So, if you want to know what a 4 bedroom home in Portland, Oregon should rent for, they have a number for you. This is based on an average; your property may be higher or lower and the range can be large, so be careful.
Third, you can do your own research on classified ad websites like CraigsList to see what similar properties in your neighborhood are getting for rent.
To sum up, there are 3 quick ways to determine what fair market rent is for your deals.
