Today, more than ever, homebuyers and renters are emphasizing the importance of affordability. Setting realistic market rents that appeal to renters (while remaining profitable) has never been more important for rental investors. Determining the right market rent rate is crucial for not only attracting consumers but also enticing quality tenants that will simplify property management and help you profit while providing peace of mind.
Whether you’re a seasoned landlord or a first-time investor, identifying and setting the right market rent is essential for success. In this step-by-step guide, CIVIC will break down how to determine the optimal rental price for your property using research, economic considerations, and other key factors.
Let’s dive in.
Whether you’re a seasoned landlord or a first-time investor, identifying and setting the right market rent is essential for success. In this step-by-step guide, CIVIC will break down how to determine the optimal rental price for your property using research, economic considerations, and other key factors.
Let’s dive in.
Market Rent Definition
Before we start, it’s important to know what “market rent” means. The market rent rate is the average rent price expected for a rental property based on location, local market conditions, comparable properties, and other factors like seasonal and neighborhood trends.
Research, Research, Research…
Any experienced real estate professional knows that research is a non-negotiable for investment success. Before setting a price for your rental, you must familiarize yourself with the local real estate market. Take the time to research rental market trends and statistics in your area, including:
- Average rent prices
- Vacancy rates
- Supply vs. demand rates
In today’s digital age, there are several online tools and marketplaces investors can use to simplify research processes. Investors can leverage tools such as:
- Zillow Rental Manager: Provides detailed insights into local market dynamics, including average rental, vacancy, and demand rates to help investors make a more informed decision.
- Rentometer: Enables investors to compare fair market rent rates by zip code, property type, and size
- Realtor.com: Offers a wealth of rental market data and insights, including average rental rates, market trends, and neighborhood statistics.
It can also be beneficial to reach out to property management companies and other real estate professionals in the area. These professionals are often experts within their given market, with in-depth market data and insights specific to your location and rental market. If you’re on the fence about whether or not to hire a property manager, it’s important to note that they will often handle all the backend market research and help you determine an accurate and fair market rent price.
Analyze Local Comparables
Real estate comparables, or comps, are similar properties in a neighborhood or area that are listed or are currently rented. Experienced investors leverage real estate comps to estimate expected ROI, gauge markets, and set benchmarks for market rent prices for their properties.
Finding the right comps in your area is the key to successful real estate comparables analysis. To find the best comps in the area, look for rentals that:
Finding the right comps in your area is the key to successful real estate comparables analysis. To find the best comps in the area, look for rentals that:
- Were rented within the last 3-6 months
- Have similar bedroom and bathroom counts, square footage, and lot sizes.
Previously mentioned marketplaces, like realtor.com and Zillow, are a great place to find valuable comps. However, relying on just one source can sometimes lead to inaccurate or misleading property valuations. So, it’s important to extend your search beyond marketplaces, using a combination of professional tools, online resources, and expert insights, including:
- Multiple Listing Services (MLS)
- Local public records
- Local real estate agents
Adjust for Property Differences
When using local comps to determine market rent rates, it’s critical to account for unique differences in other comps compared to your property. Prices should be adjusted based on the different features and amenities each property offers.
For example, let’s say your property includes newly installed upgraded appliances and a private backyard. However, a local comp has an open backyard and older household appliances. These desirable features can justify a higher fair market rental value and must be estimated in when analyzing comparables.
For example, let’s say your property includes newly installed upgraded appliances and a private backyard. However, a local comp has an open backyard and older household appliances. These desirable features can justify a higher fair market rental value and must be estimated in when analyzing comparables.
Factor in Market Demand & Seasonal Trends
Market demand and seasonal trends play a significant role in rental market rates. Rental market demand fluctuates throughout the year. During periods of high rental demand–spring and summer–local inventories drop and investors will often raise rental rates. However, slower rental periods–fall and winter–with higher vacancy rates can force landlords to drop market rental rates. Understanding these ebbs and flows and how they affect local market rental rates will help you determine the best market rent throughout the year.
A Note About Maintenance Fees
Maintenance fees, or common area maintenance (CAM) charges, are fees paid by tenants or property owners to cover the costs of maintaining a rental property, including:
- Utilities
- Landscaping
- Janitorial services
- Repairs
- Security
- Waste disposal
While many landlords will thrust all of the burden of CAM charges on tenants, a more tenant-friendly, proactive approach to maintenance fees can help investors and landlords find quality tenants in today’s tumultuous markets.
Rather than increasing monthly rental costs, offer tenants the option to take advantage of various DIY maintenance projects, like mowing the lawn, changing filters, maintaining the landscaping, etc. By creating a schedule for routine maintenance tasks, investors can utilize occupants to maintain the property while minimizing the risk of damage and costly repairs.
Rather than increasing monthly rental costs, offer tenants the option to take advantage of various DIY maintenance projects, like mowing the lawn, changing filters, maintaining the landscaping, etc. By creating a schedule for routine maintenance tasks, investors can utilize occupants to maintain the property while minimizing the risk of damage and costly repairs.
Setting a Realistic Market Rent: Final Thoughts
Through adequate research, accurate comp analysis, and a tenant-friendly approach to maintenance fees, investors can set realistic market rent rates that help avoid vacancies, attract quality tenants, and maintain high profit margins. To fully optimize your rental investment strategy and be ready for whatever the markets throw at you, it’s critical to have adequate, reliable, and fast funding.
CIVIC provides long-term investors with the most accessible and flexible rental lending packages on the market. Our team of industry experts provides investors with the tools, insights, and, most importantly, capital to profit from your investments.
Our Single Rental loan and Rental Portfolio loan options provide:
CIVIC provides long-term investors with the most accessible and flexible rental lending packages on the market. Our team of industry experts provides investors with the tools, insights, and, most importantly, capital to profit from your investments.
Our Single Rental loan and Rental Portfolio loan options provide:
- Competitive 30-year term loan options
- Maximum rental flexibility
- SFR, warrantable condos, townhomes, PUD, and 2-4 units eligibility
- DSCR blanket loan with no W2s, paystubs, or tax returns required
If you’re looking to succeed in today’s markets, setting the right market rate to attract quality tenants and partnering with a capital leader in residential real estate gives you the best chance to thrive. CLICK HERE to schedule a FREE consultation with a CIVIC team member today.
