The Investor’s Guide to Pulling Realistic Rental Comps

The Investor’s Guide to Pulling Realistic Rental Comps

3 min read
Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

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How do you effectively find and evaluate rental comps?

Rental comps are just as important as sales comps when looking at buying a property. Knowing how to find them and accurately assess them will directly impact whether you’re able to achieve profitable deals.

This is true even if you are wholesaling or rehabbing and flipping houses versus acquiring buy and hold units for yourself. This is because you need to know the real resale potential and should retain renting as an alternative exit option if your plan A doesn’t work out.

Unfortunately, this is where many investors are blowing deals—and their financial futures along with them. Too often, they accept what a current landlord, wholesaler, or real estate agent tells them. Then they get stuck and wind up with a deadweight deal that negatively cash flows every month.

Features to Compare When Pulling Comps

You’ll be looking at many of the same features and factors for rentals as sales comps.

They include:

  • Living area square footage
  • View
  • Bedroom and bathroom count
  • Architectural style
  • Age
  • Property condition
  • Special features like pools
  • Parking spaces
  • Location

Rentals can also be impacted by a wider variety of factors, especially amenities like nearby gyms, pet spas, restaurants, etc.

Related: 3 Ways to Find Comps When Determining ARV for Your Wholesaling Deal

Other factors to consider with rentals may include the application process, upfront money required, seasonal fluctuations, inclusions like utilities and wifi, and special concessions and offers like free rent.

Pulling Quick Rental Comps Online

There are lots of online tools for pulling rough comps fast.

Some of these include:

  • Trulia
  • Hotpads
  • Craigslist
  • Zillow

Rentometer.com has a free neat tool for instantly getting a rough estimate of area rents and showing you where prices fall within the whole market. A paid plan offers a deeper analysis. 

Screenshot 2018 08 18 15.49.42

Zillow has a rent “Zestimate” for formulating a rent rate. It can be fairly close, give or take.

Zestimate

Note that you’ve really got to dig into the data if you want accurate answers. Sometimes your first answers can be a bit inflated, often caused by overpriced rental listings that no one is willing to pay for. These tools also do not take into consideration the types of renovations done to a property. Days on market need to be considered as well!

For example, if a comparable property across the street from yours is asking $1,300 a month and it has been on the market 90 days, then that is a good indication the market is not willing to pay that. The market will always let you know whether or not something is too high. The market (renters) provide the best feedback. It is also smart to look out for the number of rentals that are being advertised. If there are too many, landlords are going to have to fight hard for any tenants and may have to come down a lot by making concessions.

There can be a huge difference between asking rents and actual rents. One house might be asking $1,500 a month. An identical unit next door could have just leased for $800. It’s hard to know online because this data isn’t provided like actual recorded sales comps.

Getting Comps Offline

Look to local professionals who are active in the market for better data. Think property management companies. Find a company that manages several rentals in the neighborhood you target. They will give you a solid rate that they believe they can rent it for.

Related: How to Best Gauge the Correct Rental Rates for Your Investment Properties

Get in the trenches. Spend time in the neighborhood where you plan to acquire, and ask folks how much they are paying in rent, if they’d move into your property for $X, and what they think about the property.

Summary

Being able to get and evaluate rental comps is vital for all investors. Don’t get caught with longer vacancies by failing to do your own due diligence on rents and rental demand.

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Which are your favorite tools and methods for finding rental comps?

Let me know below!