Determining Rent Amount

15 Replies

I am awaiting my pre-approval so I can purchase my first investment property, this might be a dumb question but once I have a property how do I determine how much I can rent the house for?

Hi @Jordyn Rodriguez Its the key question to making your business successful, mediocre, or going bust! Start with Craigslist and look for similar properties to yours in comparable neighborhoods (# of beds, baths, same square feet, condition, and style ie SFR, duplex, apartment, etc). Same with Zillow (and other rental sights). Set your search criteria to mirror your unit and look at the map. Search as if you were your potential tenant. You can also get real time info from Rentometer on a trial basis.

Also, call your local Housing Authority and let them know you are purchasing a property that you “might be interested in opening up to sec-8 tenants”. And ask what price point you would need to be at for their clients to qualify.  That will give you a pretty good baseline.   

Good luck!

Use the many different rental platforms to do market research on what rents go for.  Make sure the properties you are comparing to are apples to apples.  Rentometer is a good tool also. 

@Jordyn Rodriguez have you considered hiring a property manager? I would caution you against renting on your own when you lack the basic skills necessary. If you don't know how to determine rent rate, how can you determine what a good investment is? How will you screen applications or handle a tenant that fails to pay rent?

A property manager will cost you about 10% of a year's rent. One bad tenant can cost you 50% of a year's rent or more. Consider hiring a manager until you learn the ropes and are better prepared to take over.

You can start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. Regardless of how you find them, try to interview at least three managers

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their different staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 5% management fee but the extra fees can add up to be more than the other company that charges 10% with no add-on fees. Fees should be clearly stated, easy to understand, and justifiable. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate!

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that it is enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact they are complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!

@Jordyn Rodriguez I use Zillow to find comparable properties. I use number of bedrooms, bathrooms, location and square feet. I track what prices comparable properties are renting at. Based on that tracking, I end up with a high end and low end rent number. I price somewhere in that range.

You can also use Rentometer and Zillow Zestimate for rent recommendations, but in my experience those numbers can be way off. Sometimes they are spot on too.

As @Nathan G. mentioned, a property manager will give you a rent price and for someone starting out, that may reduce your risk. A property manager can give you a number off the top of their head, because when you are frequently renting, you just get to know the market.

I have been using Zillow and Trulia to get an idea as to what comparable homes are ASKING to be rented out for in my area.  You can enter in the amount of bedrooms and bathrooms to really focus on the results.  Then compare the properties, garage or no garage, central air or units, square footage etc to get even more granular.  I also like to look how long the home has been listed for rent at the asking price.  Might be a sign the price is too high if it has been up for 45+ days.

Rentometer is also a good indicator, but sometimes it can be really off, at least in NJ where I am looking.  The property I am closing on this month is near a popular beach destination and the rentometer comps are about $300-$400 off what is showing on Zillow and Trulia.  It will show you a radius of the comps, so just be mindful of the location.

Jacob, I think what he means is that you shouldn't pay attention to what Zillow "estimates" the rent should be. You should look at actual rental prices advertised by the owners and you should try to use more than just Zillow for comparison.