I'm pretty good when it comes to analyzing a deal besides one aspect: figuring out what a reasonable monthly rent would be for a property. I can plug in hypotheticals to see what the cash flow would be, but I struggle to get a good estimate on what the place would actually rent for. I know that everyone mentions using other rental listings in the area as guides, but I'm in RI and don't often find a ton of rental listings to use as comparisons.
I asked my agent on one particular property that I looked at and he said I should be able to do $1,100 for a 3 bed unit if it's in medium shape in an area where I saw another listed at $1,275 and rentometer gave me an average rent cost in the area of $1,467. Now these are 3 very different numbers and really change the way cash flow comes in. They're all cash flow positive; however, if he is right about $1,100/month then it's not the best deal as the cash on cash would only be around 6-7%. This is obviously a dilemma since renting at $1,450 puts my estimated cash on cash return around 32%.
What is the best trick to finding the right amount before actually buying and listing a property?
Hi @Warren West ,
Not sure where in RI you're looking, but there are plenty of rentals on Zillow and Craigslist to use as a guide. You can even take the extra step to find a rental that is similar to the one you are analyzing (i.e. location, number of bedrooms, utilities included or not, etc) to get a first hand look at the competition. Once you see enough of them, you'll have a decent idea.
A slightly longer-term suggestion (but worth the effort) is to make connections with property managers in the area. I trust their input more than I do realtors, as they fill vacancies all the time and have seen enough properties to give you accurate information.
All that said, when in doubt, I'd suggest being conservative with expected rent when running your numbers. If (or when) the market shifts, it won't hurt as much. Good luck!
Thanks for the input @Nancy DeSocio !
The current house I was analyzing is in Warwick but closer to the Cranston line. I saw 2 properties renting in the same area with the same square footage. One was 2bed listed at $1,100 and another was a 3bed listed at $1,275. I have yet to see the inside of the unit I'm considering to know condition.
I would say the conservative would be $1,100 as I would expect to be able to get that for a 3bed unless it is in horrible shape (in which case I would either pass or negotiate price for improvements anyway). I tend to be very cautious with my analysis of properties by taking 26% off the top to cover repairs, vacancy, CE, and management so cash flow for me comes into play after taking away 26% and then subtracting the monthly mortgage payment.
It sounds like you’ve some up with a range of plausible rents, I’d recommend sticking in the middle or lower-middle range for basic analysis/offer purposes.
If your offer gets accepted, you can go to the next level and actually take a look at the competition in more detail to refine your numbers during the inspection period, to see if any further adjustments need to be made.
In your specific case, I like using 1100 or 1200 tops for the 3BR on the Warwick/Cranston line in your initial analysis, refining based on the specific neighborhood and condition of course.
Personally I have not been that impressed with Rent-o-meter, but Craigslist and Zillow are kind of the standard these days so I would lean heavily on what you see there.
Thanks @Anthony Thompson . I always try to be conservative in my analysis because if things end up being better than expected it's only gravy but I wouldn't want to shoot too high and then reality ends up being a breakeven or worse.
For a house being in one town vs another seems to matter. It is about schools so lean towards the rent for the town you are in. Hotpads or rentometer I think you can see historical data.
This is one of those things where no website, metric, or formula is a substitute for familiarity with your market. If you are having a difficult time gathering compatibles, I’d go off of the lower end of the rent spectrum.
Given that my primary business model for the last 8-9 years has been primarily focused on rentals, if you provide me with some pictures, square footage, and neighborhood within a particular city or town, I can get you in the ballpark.
I like RentRange. It's based on actual rents, not listed rents. I have a promo code you can use to get 25% off every report you run with them. Message me if interested.
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