Market Rent V. Under Market Rent
When choosing rent for a new property or when looking for a new tenant rent amounts are critical.
Each time you have a vacancy you should check the current trend and market for your property. You should never assume anything as the market is always changing.
I use multiple sources to determine what the market is. Since I self-manage and most tenants don't use listing agents in my area, I don't use the MLS. If you have access to it you should use it as another source.
I use Zillow, Rentometer and Apartments.com for the most part. I’ll add in Redfin, but I think Zillow has better information for rentals. There are lots of other sites, but these are the most reliable.
I don’t go for the highest marketable rent. Those tenants tend to not stay long term. Just under market rent I’ve experienced longer term tenants. The goal of course is to make the most money, but vacancies kill cash flow. Vacancy time plus repairs will cost you multiple months of rent when you do the math. Long term tenants are the best solution even if the rent is a bit less.
What has been your experience?
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Good advice. I'm also a self managing property owner of approximately 30 units for over the last 6 years, what you said checks with my experience and practices.
I first started in 2019, back then it takes no more than 3 weeks to rent a unit at market rent around $1600 for a 3 bedroom. When COVID hit, the shortage of housing and growing of population in our area drove the rental market through the roof. Anything I listed gets rented in 3 days and the rent has gone from $1600 to as high as $2500 for a 3 bedroom. Then things started to die off with more apartment buildings have completed and less population growth in the last couple of years. In 2024, rent is coming down to $2200 to $2300. And 2025 rent is getting to $2000 with roughly 3 to 4 weeks time to rent.
Another conclusion I've drawn from the long term rental experience is that cash flow pays the bill, but it will not create generational wealth. A good cash flowing property allow the property owner to hold on to the property indefinitely and only sell at the right time where it makes more financial sense to the owner. Appreciation is what's driving most of the wealth building over time. So in general, I'm not too stressed out about a few hundred dollars in monthly cashflow but I do want a long term stable tenant in the property.