How Do You Determine the True Market Rent？

[Ying Tang]

I’ve been investing in multifamily properties in Arizona, and one thing I’m still trying to understand better is how experienced investors determine the true achievable market rent for a specific property.

Right now, I typically use Rentometer as a starting point. I look at the median rent, try to compare similar property types, and remove obvious high-end outliers.

But I’m seeing some huge discrepancies in actual rents.

For example, I’ve seen 2BR/1BA units in decent neighborhoods renting for around $900/month, while seemingly comparable units are getting $1,400–$1,550+. In some cases, the higher-rent properties are professionally managed or managed by an experienced realtor.

That raises a few questions for me:

1. Why are some landlords so far below market?
   Are they intentionally keeping long-term tenants, avoiding turnover, unaware of current market rents, or is there usually something about the property/tenant situation that isn't obvious from the listing?
2. How reliable is current rent as an indication of achievable rent?
   When underwriting an acquisition, how much weight do you put on the existing rent roll versus your own estimate of market rent?
3. What tools/data do experienced investors use to determine achievable rent?
   Rentometer? Zillow? MLS rental comps? Property managers? Calling competing properties? Something else?
4. I've also noticed something that seems counterintuitive: sometimes a nicer property with very low rents sits on the market, while an average property with much higher in-place rents sells quickly at a much higher price.

   Is this mainly because buyers value proven NOI much more heavily than potential NOI?

My instinct is that I would rather buy the nicer property at a better basis and gradually bring rents toward market than pay a premium for a building where someone else has already done that work. But perhaps I'm underestimating the difficulty, cost, vacancy, tenant issues, or risk involved in actually achieving those higher rents.

My goal is eventually to acquire around 30 units per year, so even being wrong by $100/unit/month makes a meaningful difference in my underwriting — and being wrong by $200–$400 obviously changes the deal completely.

For those who have acquired a lot of multifamily: How do you determine what a unit can actually rent for before you buy it? And when you see rents significantly below your comps, do you view that as opportunity or as a warning sign?

Would really appreciate hearing how experienced investors think about this.

[Jenna Fawley]

I’d look at both the current rent roll and what the units could realistically rent for, but I wouldn’t rely on either one by itself.

There are a lot of reasons landlords end up below market, long-term tenants, avoiding turnover, not raising rents regularly, condition, utilities, or just poor management. So low rents can definitely be an opportunity, but I’d want to make sure there isn’t a reason they’re low that isn’t obvious from the listing.

I also wouldn’t assume that because similar units are advertised at $1,400–$1,500 they’re actually getting that. I’d compare Rentometer/Zillow with recent rental comps, local property managers, and even competing properties nearby. Actual leased rents are much more useful than asking rents.

I think that’s also why you’re seeing properties with stronger in-place rents sell faster. Buyers are paying more for income that’s already proven versus taking on the time, cost, vacancy and tenant turnover needed to get there.

Personally, I’d probably lean the same way you are, buy the better property at a better basis and create the upside yourself, as long as the deal still makes sense if it takes longer or costs more than expected to raise rents.

I also have access to a tool that can pull rental comps pretty quickly, so if you ever want me to run one on a property you’re looking at, I’m happy to.