What Do YOU Do to Determine Rents?

Question

Yes, I know there are a bunch of websites out there that estimate rents, poorly.  I also know that the best way to get a feel for rents is driving the neighborhoods, calling signs, putting up your own, putting dummy ads on CL, etc.

My question is the following:  What do YOU specifically do?

Let's say the property is not in your area (out of state).  Driving the property isn't exactly feasible, and neither is checking the MLS, because you probably don't have MLS access in that state, and even if you did, the amount of rentals on the MLS are rarely enough to find relevant comps (and they carry a premium because the landlord has to pay the agent and coop agent). So what do YOU specifically do to determine rent?  Do you use a website, variety of websites, post on CL until you get calls, ask a PM, or something else I haven't thought of?

Would be great to get a J Scott-esque detailed process to find rents, but it seems as though the most detail oriented folks on this site are flippers, and thus don't have this particular process in an easily teachable format.

I'd love to be proved wrong.

Aaron Mazzrillo · Answer

We do lots of things to come up with a price, but ultimately, we let the market determine the rent. Nothing else does.

Set your rent. If a lot of people show up and want the place, raise it. If they don't, lower it a little every week until it starts generating interest. Craigslist & zilpy can help you pick the starting number.

Rich Weese · Answer

I liked Aarons' reply a lot and agree 100%. I want to add one thing I've found in 40 years of doing this.
    Let me compare this to a "typical" accountant from my experience. I have a great acct that tells me I can be as aggressive as I want on my returns, if I remember to keep in mind one thing. 
    I can call a tngerine an orange if I want. Anotherwords, If I can make a good argument on a particular treatment on my taxes, go for it and he'll be right next to me. However, if I want to call a tangerine a watermelon, no thanks. He's willing to battle with me. Many accountants want to stay as far away from that line as possible. Not because there is anything wrong, they're just lazy and don't want to spend extra time on an audit.
    Property managers are the same, imo. MANY want the easiest way out. To them the difference on a $900 rent is $90, to the owner it is $810. If they can rent it quickly, maybe with one single trip for $800, the difference to them is 10 bucks. To the owner, it is 11% drop! Take 11% profit off any business, in many cases, that is a sizeable drop. Consider your rentals as a business, and drop rents 11% and it can really add up.
    Remember, "no one will take as good of care of your money as you will". Be agressive on your rents, especially in this rising market. Rich

Bryan Hancock · Answer

I hire a property manager.

Kyle Meyers · Answer

For my properties, I have checked rentometer to see what the area is like. That is just my starting point. I then look on craigslist and see what is listed in the area, and compare the features of each. I have tried calling the signs in the area, but strangely don't get an answer and no one returns my calls, I guess that is why they can't get tenants.

Once I gather some data I figure out what price I think it could rent for reasonably, then I set my price $50-$75 higher. If I get a lot of interest I keep it high, but otherwise I start dropping it every couple weeks by $25, I usually get a tenant to sign a lease after the first or second drop for $25 over what I had determined would be a fair rate.

Once the lease term is up I will slowly raise rents to keep them with the market  and provide the market comparison to my tenants so they can see that I am not just raising rents to suck money out of them. I believe a good tenant is very valuable, but not to the point of keeping their rent level for years. I haven't been doing this long enough to be able to raise any rents, but I plan to do it slowly, just a few bucks every 6 months or so based on market comps (I will probably use rentometer since the rates there seem high to me, that way I can show my tenants that they are still paying less than the median for the area)

Bienes Raices · Answer

I've look on craig's and calling "for rent" signs in the neighborhood when the house is similar to mine. But I've found that the real rent you can actually get is always lower than what other landlords are asking. I've seen some houses around here where the LL is asking too much and house sits vacant for months on end. I assume they're basing their asking prices on their mortgage payments, rather than the market reality.

Michael Lauther · Answer

I have to second Rich with respect to property managers. They seem to lean toward the lower end of the scale to get the property rented quickly. a case in point is my recent experience. The prior rental was 525 monthly. the majority of the property managers suggested a 475 rental for a property that has been renovated to excellent condition. I had some interest at $575 and finally rented it for $550 a month. I had to work harder at getting it rented and went through many applicants before making the final decision but feel it is worth my effort. I have since rented a second property in the same area for $550 monthly and I am now working with a 3 bedroom and look to get $625 monthly. The low rental estimates is what kept me from using a property manager to handle the property. I am an out of state investor and need to have reliable people available locally to assist in managing the property.

Rich Weese · Answer

Jake- my examples were on existing rentals. I wasn't discussing properties that hadn't yet been acquired. It would be different. I try to stay in areas that I already own in, and is easy to substantiate values. Rich

Bienes Raices · Answer

Thanks. I have seen some rentals around here with rents I thought were too low (like a nice 3/2 for $799). Invariably these were under property management. Now I know why they were so low.

Jake Kucheck · Answer

For Aaron and Rich and anyone else advocating the "markets are smarter than you are approach"... I get it.  But Microeconomics and Macroeconomics are two different things.  To me, my rental is not so much an economic case study as it is an appreciation too and, god willing, one day a cash flow generator as well.  So I'd rather not chalk up a huge loss to theory because I got the numbers wrong to begin with.

So, to clarify, are you suggesting that prior to purchasing the property, you post these ads, field calls, and show the place?  I guess with an REO you could do that a bit easier (despite it being in bad faith and probably illegal), but how do you do you get owner occupant equity sellers to let you show their place to prospective tenants?

George P. · Answer

Check craigslist, talk with other landlords in the area (local REIA's and LL association).

What Do YOU Do to Determine Rents?

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