Why do rent amounts vary so much on multi-family?

Question

Not real experienced when looking at multi's so this is new ground.  So I've been looking through the rent rolls on several properties all in the same town and not too far apart.  They are all similar in size and built around the same time frame.  What I'd like to know is why the rent amounts vary so much.

For example, in four 4-unit buildings this is what the rents look like.

585, 610, 615, 585, 585, 615, 630, 585

585, 615, 630, 585, 585, 615, 630, 585

I'm guessing that some of this variation is due to supply and demand (winter and summer) but are there any other logical reasons as to why this would vary $45 between the high and the low?  These numbers look very much the same on other couple of buildings I've looked at.  So  in doing my analysis on this deal, I'm assuming that I'd base my numbers on the lowest rent of $585 for all 16 units and then any extra would just be gravy?

Michael Le · Answer

How far into the lease are each of the units? Some of the higher priced ones could be newer leases that already have the increased rent. That would mean the market supports this higher number and you can be relatively sure you can raise the other units when the time comes.

Also, it's possible some concessions were made by either side at the time of the rental. Perhaps it was a re-up from a long time tenant so the owner didn't want to increase rents. On the other side, perhaps the renter had bad credit so was willing to take higher rents. Could be many reasons.

David Krulac · Answer

@Aaron Wyssmann

There is a large complex of relatively newer apts. where they have 3 levels of rent depending on amenities.  The units are the same size, but the higher rent places might have granite and stainless, and new kitchen cabinets, while the lower rent units don't have any of those, having the original builder grade cabinets with white appliances.  some places might even have garages.

David Krulac · Answer

How long the tenant has been there.  I have a 30 yr, and an 17 yr in the same building as people who in their first lease.  Guess whose rent is higher?

Here in winter fewer renter prospects, even when I try not to rent then and have leases expire not in winter, stuff happens.  There are less tenants in winter, so people starting a lease in the winter with me sometimes get a little lower rent.  Spring is the reverse, slightly higher rents.

Sometimes even same size units have different amenities.  I one building all units have their own washer and dryers, except for one unit, guess whose rent is less?

James Hutson · Answer

Could be a sign that since a few of the rents are slightly higher than the others, that the current owner was likely soon going to spike the (now) lower rents to bring them up to match the higher ones. Also, it very well might be an attempt to force appreciation by increasing rent.  I know many mutli owners play very close to the chest with their expenses and don't want to share them, but as a potential buyer maybe you could convince them to show you a year or two worth of monthly expenses...see if they have been decreasing (owner found a way to decrease them).

Remember, the (only?) way to increase the value here, is to increase the rent or decrease the expenses.

Aaron Wyssmann · Answer

@Michael Le

@Brad T.

@David Krulac

Thanks guys for these great answers.  I knew there had to be some other reasons but just couldn't come up with what they might be.

Brad T. · Answer

For this deal, I would use the average rent to calculate the deal.  I would say the reasons below are part of the variation.  You would be surprised how much rents can vary even in the same building.

- Lazy property manager that hasn't raised rents fast enough, maybe they don't want to lose good tenants, maybe they don't want to find new ones

- Some units have a better view, are upgraded, or have nicer features of some kind

- Maybe some include water or heat and some don't?

- Time of year leasing as you mentioned

Rich Hupper · Answer

I would just look for other apartment comps that have the same beds and baths. Use the ones that have rented over the past six months to verify the rents of your subject property.

Why do rent amounts vary so much on multi-family?

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