I am looking at 2 different MFH in my area to purchase for my first investment property. But I'm having trouble with the huge discrepancy in rent prices to judge them on. The first is a triplex which Rentometer says should rent at 800 per unit. However, they are currently renting at 500 per unit. The second is a duplex which rentometer has at 1100 per unit, but are renting at 750. I've looked on zillow and the cheapest 2 bed 1 bath(which is what the Triplex is) is 750, and the cheapest 3 bed 1 bath(duplex) is 900. Is this a case of landlords just not keeping up with rent inflation or am I missing something as a new investor? Any advice welcome! Thank you!
Hey @Jeremy L Moskal, Rentometer is a great place to start but for accurate rental rates, you need to do your own digging. Rentometer doesn't take into account the nuances of the unit. The rents you are seeing on Zillow & FB Marketplace are actual comps, just make sure they are similar in size, location, & condition of the subject property.
Hey @Jeremy L Moskal, Rentometer is a great place to start but for accurate rental rates, you need to do your own digging. Rentometer doesn't take into account the nuances of the unit. The rents you are seeing on Zillow & FB Marketplace are actual comps, just make sure they are similar in size, location, & condition of the subject property.
I have found Rentometer to be quite accurate in large metro areas. In outlying smaller towns there isn't enough data. I use Rentometer Pro to help investor buyers determine if the rents are at market rate when purchasing multifamily. First choose the distance, sometimes you'll have to go farther out. Be sure you have the proper bedrooms, leave off the bathrooms and the "type" of property correct - duplex, apartment, etc. Then run the report. If I don't get enough data, then I go back and adjust the parameters. Also, note how up to date the data is. If I don't get enough data then go to the apartment.com or other rental sites for more proof. At the end of the day you can still look on Craigslist or Facebook Marketplace and see what a similar property is renting for. Another consideration is to look at the Section 8 rental rates in the county, at this time, they may be higher than market rent.
@Jeremy L Moskal Everyone should keep in mind that rentometer gets their information from actual posted listings. But of course, since listings for rentals never actually “sell” or close in the conventional, recorded @ county sense, it's like arriving at fair market value by looking only at active listings, not sold comps. You will have a slight discrepancy between numbers but I've been using Rentometer for nearly six years now and they have yet to disappoint.
Rental numbers for urban areas are pretty easy to determine but get exponentially difficult the further out from civilization one gets. And at the end of the day, all of these rental amounts are not scientific figures but rather subjective, highly-biased and ever changing.
As suggested in a few different ways and to summarize, automated rental analysis is based on actual rent data, be it Zillow, Rentometer, et al. However, there are many areas for which there is no available, nearby, and relevant rental data. You could be analyzing a deal in a location for which there are no listings in the entire zip code for rent. In my process I build MLS listings into a database table of properties for sale, and another table of properties for rent, and update rental fields on the for sale side in iterations:
1. If there are rental comps in the same legal subdivision I update rental comp amount and set the rental granularity to subdivision.
2. "Zooming out", any that had no subdivision comps, I match by zip code, and update any matches found, setting the granularity to zip.
3. Any listings that have no subdivision or zip comps, I take the HUD value for "fair market rent" in the county, and based on previous analysis of the relationship to that value and actual market rent, I multiply the HUD value by 1.22. For those listings I set the granularity to HUD.
In the resulting spreadsheet, any deals that look hot for potential cash flow but with HUD granularity, I do a manual sanity check by trying to manually find rental listings on various rental sites as if I were looking to rent there. If I find comps I set granularity to manual (most reliable), and if not I leave it at HUD (least reliable).
Investing in a deal with HUD reliability of the unit has both risk and opportunity. On the risk side HUD might be overestimating what might fly for some lowball pockets of the county, but then again if there are no actual comps nearby, your rental there might be the only game in town, a "monopoly" based on location, and some people might have little choice other than to pay that rent.
I think with more technically sophisticated APIs like Rentometer they do a geocoding to find the nearest comps and set the confidence level to lower values the farther away the comps are. I could geocode if I paid for the Google Maps API key but it's really not much more accurate than adjusting HUD's numbers for county level comps.
Not as accurate in mixed suburbs - meaning, it comps by distance but doesn't take into account nuances between different suburbs like quality of school districts.
A lot of times if someone has been a tenant for a while the landlord doesn't increase rent to market value. I see this all the time where market rent is x but the tenant is paying well below that number. Since you are looking to buy, it wouldn't hurt to have an agent help you find those numbers as they can look on the MLS. The agent on the buying side is paid from the seller, so hiring an agent to help doesn't cost you anything.
@Jeremy L Moskal rentometer will give you a ballpark. If you do rentometer pro where you can see the addresses use prices for comparable properties in similar condition. Yes, landlords can let rents go low but there are also nuances that rentometer doesn't capture and if you have fewer listings it causes bigger issues. In our area they mix student 9 month rentals and year round rental prices, the price is weighted towards lower price student rentals since there are much fewer year round rentals. Some areas 3/2 and 3/1 make a difference. Whatever you do be conservative and know the things that decrease the price of your rental, small bedrooms, outdated kitchen, family house on a busy road.. A gap from $700 to $1100 if there is a triplex with the exact unit renting next door or down the block you can feel confident the rent expectation is real, 2 miles away not so much.
I have run teaser ads that say something like “coming soon” with a description of the property and a general idea where the property is located but without supplying actual address or photos. Then I see what the response is like at the particular price I’m advertising it for. This has worked for me. When people call to inquire I tell them I’m in the process of buying it and will contact them as soon as the home is mine. I also closely monitor what rentals are currently on the market in the same neighborhood.
Honestly thank everyone so much! As this was my first post I didn't expect too much but there is so much awesome information here! The podcast always mentions on how great and helpful the community is but to see it first hand is really cool. I walked the Duplex on Monday. It's a very strange "drop off" in that the area going up to the house is gorgeous and then you hit the block where the house it and it's very run down, single dirt road heading in and out, and house itself is pretty beat up. I look at the triplex Friday. If I can even do 700 a month per unit it raises the CoC RoI to 32.3% and around 1k cash flow, and meets the 1% rule (comes in at 1.3%). Im obviously terrified as it's going to be our first investment property and first time being landlords, but all the numbers seem to make sense. Just gotta get over the hump of the first deal! Thank you all so much!