How can I make quick and accurate rental estimates?

Question

I am looking to buy rental properties in areas I am not familiar (in a lot of cases out of state). Unfortunately, I've found estimates from Zillow, Rentometer, and other platforms significantly off after conducting thorough research. This time adds up investigating one property after the other. Has anyone found tools or a process to make accurate rental estimates without eating up all your time? Love hear your experiences and feedback. I too will share what I learn as I continue through the process.

Matthew John · Answer

It's super hard to gauge what you can get away with.

I bought a Duplex recently and he was renting for $795 on the bottom, bigger unit.

Rentometer says $825 is appropriate. My agent said $795 was correct.

I put up a test Ad right after closing at $925 and received over 70 responses in 24 hours. I took it down, deep cleaned the unit, added handles to the cupboards, and purchased a Modem and added internet for $30/month.

I then charged the upstairs tenant $25/m to access the internet & relisted it at $1000/month. It took about 3 weeks to get it rented out. I did about 30 showings and had 10 applications. Most people didn't like it was a Duplex, but the house looked better than anything else on the market and it was basically turnkey.

The previous owner got $1370/month total, I brought that up to $1600/month.

Moral of the story, it's hard to gauge! I suggest putting out some feeler Ads first. If the house is better than any other house on the market, you can demand above market rent. If the market is saturated, it'll be harder to even get market price for rent. If you don't like the price you're renting at, do a short term lease and try again when it's done!

Matt K. · Answer

Just go on craigslist and hotpads.... and study the areas. It's pretty easy to see areas that consistently get high rents and bad areas that get low rents. The thing about the bad areas... you'll see TONS AND TONS AND TONS  of listings... all for the same spot. Bad/low rents = high turnover.

Caitlin Damani · Answer

@Matthew John I love the idea of feeler ads! That's a fabulous idea.

@Zubair Ahsan For spreadsheet work, I use Zillow and Rentometer to do my first basic calculation to see if I'm interested in digging in further. And yes, I'm a long distance investor. Once I had a property manager that was good, my rent estimates were right on. On the first purchase we made, they took a lot of section 8 tenants to inflate the rents and we ultimately decided some of those tenants were destroying the property so we lowered the rent to attract the right tenants and once we had the bad ones out, we slowly moved the rents back up. It has been a learning curve for sure. Luckily the neighborhood is great.

Zubair Ahsan · Answer

Thanks, Matthew for the story! Quite impressive, not only were you able to validate rent comps, but also affect them. Your process flow is not only a time saver but also de-risks the asset!

Bruce P. · Answer

Great question @Zubair Ahsan as I was just researching different areas and was figuring out how to ensure my numbers were accurate and cut down the amount of time I'm doing research. And thanks for sharing the results of your experiment @Matthew John, it's a great point about experimenting and testing!

Matt K. · Answer

What do you mean going there to do it yourself? If you have enough time, the same platforms that everyone (PM included) used to list can give you a pretty good idea.

Caitlin Damani · Answer

1. The best way of getting rent estimates is from a local property manager. I would use Zillow and Rentometer for spreadsheet work. You're going to need the property manager if you are going long distance and he/she will give you much more information if you establish a relationship before buying. Just the process of interviewing property managers for the job will give you tons of information first hand about the areas and the tenants. Your property manager might even be able to help you get an off-market deal because many of them also have their real estate license and they have boots on the ground. We got our second property this way.

2. It's time consuming for sure, but you can look up the largest property managers in the target area and they will often have a website that lists the rentals they manage. If they manage larger properties, you can dig in and see the list price for the different types of units. (Probably a better strategy for A rentals, maybe B).

Zubair Ahsan · Answer

@Autumn Alexander, wow! REIFAX and REIKIT definitely look like tools that can help cut down time on research. I will need to do a thorough review before I can give feedback. Do you know where source their rental estimates? or how their estimates faired for you?

Zubair Ahsan · Answer

Thanks, everyone for the feedback! Have any of you done long distance investments? If so, were your rental estimates ever off? If yes, what was the cause?

- Zubair

How can I make quick and accurate rental estimates?

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