Home Blog Real Estate Investing Basics

Newbies: Before You Buy Property, Gauge Your Rental Rates. Here’s How.

Brett Lee
3 min read
Newbies: Before You Buy Property, Gauge Your Rental Rates. Here’s How.

Truly understanding rental rates in any area takes a lot of time and experience. Most people go to Craigslist for a few minutes and think they understand rental rates. That’s not a good idea, and we’ll get to that in a minute.

If you don’t have time or experience, it’s best to leverage information from those who do and learn from their experience.

How Much Rent Can I Expect?

The beauty of investing in real estate is that you don’t have to do everything yourself. If you want to know what a property might rent for, ask someone (the property manager) who optimizes rental rates for a living. Here’s the best way to do it:

Related: The Newbie Challenge: 30 Steps to Get Started in Real Estate in 30 Days

Give a local rental agency a call.

Ask about their services and how much you could expect in rent in a given area or for the type of house that you’re considering buying. It’s free to have a consultation, and in just a few minutes you could walk away with a decade of rental knowledge for that area. They might even be able to tell you what’s the most profitable route for buying.

Go to a few local rental agency websites.

See what they charge for homes/apartments in your area. The job of a rental agency is to maximize profit and minimize vacancies. If they are getting more than landlords on Craigslist, then find out why and copy them. Rental agencies don’t inflate prices above what people will pay or they will lose money from vacancies.

Call a rental agency to gauge pricing.

Many property management offices use software that monitors how many people are looking at rentals in an area at a given time and adjusts price to reflect demand. You don’t need this software; just call a rental agency that uses it (larger rental agencies) and ask what they are charging for different sized homes/apartments. Call a few times a year to see how things are changing. They get almost instant feedback about demand and can anticipate changes quickly. Rainmaker is an example of this software.

Bonus Leverage Tip

Sit down with a property manager and tell them your plan. Hear them out. It can be good to have someone else do the managing for you. Ask them where they would invest if they had the amount of money you have. If you sat down for a half hour with 10 different property managers that each had 10 years’ experience, you would gain 100 years’ experience in 5 hours. Leverage the knowledge you need.

“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” – Archimedes

Many people turn to Craigslist to see what rates to expect. If this is what you’re thinking, then you can see this article as an intervention. Stop.

While Craigslist is great for finding tenants, it is not so good for determining rental rates. When your average amateur landlord is having a hard time finding a renter on Craigslist, they don’t usually work on their advertising or marketing or even try to provide more value to renters; they simply lower the price.

Related: 5 Harsh Realities About Real Estate Investing Every Newbie Should Know

People go to Craigslist for the same reason they go to Walmart; lower price is more important than quality. You may not want these renters.

If property managers are able to get more profit than landlords (they usually are), copy what the property managers are doing, i.e. using professional photos, offering amenities, including well-written house descriptions and employing websites for advertising. Whatever you do, don’t try to compete by lowering your prices. Add more value instead. People are paying you for the value your property provides for them. What do the most expensive places offer? Can you copy that and get the rates they do? Do rental agencies focus on a certain area? Maybe you should, too.

Experienced investors: What tips would you add? Newbies: How are you going about gauging rental prices in your area?

Leave your comments and tips below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.