How to Best Gauge the Correct Rental Rates for Your Investment Properties

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So now that you have an investment property or two under your belt, you are probably considering the possibility of renting them out. However, determining the right property rent rates can be difficult at times.

After all, if you charge too much, you’ll likely end up with higher vacancy, but on the flip side, if you undercharge, you will lose out on profit. So how do we go about choosing the appropriate market rent, you might ask? Well, hopefully this short guide will help clear up a thing or two.

Related: The Top 10 Rental Features That Attract Cream of the Crop Tenants

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What is Market Rent?

The term “market rent” refers to the current rate for a certain area’s rental property. Your rent is determined by what the rest of the real estate market will support. Therefore, the most valuable piece of information that you will have to have is how much other landlords are renting their properties out for. However, be sure to keep in mind some of the additional variables such as:

  1. The number of bedrooms, bathrooms, etc.
  2. Are there any special amenities featured?
  3. Are there any garages or extra storage space?
  4. Will you allow pets to reside in your property and perhaps charge a pet rental fee?
  5. Is the property already fully furnished and ready for the tenant to move in?
  6. Are there amenities the tenants would use, i.e. grocery stores or Starbucks, nearby?

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The Best Methods for Gauging Property Rent Rates

Check Out the ‘Hood

The most common way to do this is to simply drive around your neighborhood, and if you pass any properties that are for rent, call up their respective owners and ask how much they are charging. Or perhaps check out the local newspaper or Craigslist, or contact a local property management company and search for comparable rental properties in your area. This will help give you a rough indication of how much you should be charging.

Not only will you get a better idea of rent levels, but by going more in depth into the rental situation in your area by speaking with property managers and tenants, you will gain a better understanding about the viability of the rental rates. You’ll learn whether or not tenants feel like what they are paying for is considered a “steal” or if they feel like they are being overcharged. This way, you will have a much greater indication about an appropriate rental rate for your investment property. So for you introverts, now is the time to step out of your shell.

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Utilize Automated Property Rent Determination Tools

These awesome rent comparison tools are extremely handy in guiding you to discover the best property rental rates for your investment property. So be sure to check out these following FREE sites. And yes I said FREE!

  1. Trulia
  2. RentBits
  3. Rentometer
  4. Zillow
  5. City-Data.com

Related: 4 Steps to Perform a Rent Survey for Your Investment Property

Zillow.com’s rent Zestimate is usually pretty accurate, give or take. So out of those free tools, that one is highly recommended. I wouldn’t recommend it for property values, though (that’s another story).
So with these great tools under your belt, this will make your life as a future landlord a whole lot simpler. Be sure to take advantage of these awesome sites and your own person skills to maximize profit while not scaring every potential renter off the grid.

Investors: What tools do YOU use to make sure your rents are at the right level?

Leave a comment and let me know!

About Author

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record

22 Comments

  1. Douglas Skipworth

    Sterling, those are the 2 primary methods we use, too (i.e., local comps and national websites). As for local comps, we also check the MLS system to see what’s available or recently closed.

    The only other method we use is the old trial and error approach, where we put a price out there to see how the market will react (i.e., we set the asking rent slightly above what the other methods say it should be to see if there’s someone out there who values the property more than the market says it should be valued). This can take a bit longer as we usually overshoot the value and the house sits a week or two longer than it would otherwise. However, occasionally, we’ll find someone who values the property more than the market does for some subjective reason. Obviously, this approach isn’t for everyone, but a lot of investors we know like it since it means higher rents.

  2. Joseph Thomas

    Good pointers Sterling. We don’t want to leave money on the table but we also don’t want to sit on a vacant property. Specifically for Craigslist, I recommend to others that if you have a particular area or town that you own in (which is unique and doesn’t have 100 listings a day) set up a Craigslist Notification using that area/town as a criteria. There are a couple free Craigslist notification apps that work well for me. 3 of our properties are in a town that is on the outskirts of the metro. There may only be 5-10 listings a week that come up, which I get notified about the instant they come up. By taking 30 seconds to review each listing I can keep a pretty realistic pulse on my market. At any time I can check back in on the app and see if the listing is still active (likely indicating if it has been rented or not). If the price was too high or property undesirable I’ll get another notification when it gets listed again.

  3. Larry Aiello

    Hi,
    Does anyone have any good tools to pull in rental rates for a large number of properties?
    And compare it against the listing price of a property for sale on the MLS?
    I was just wondering if there is an efficient way to do this.

    Thanks,
    Larry

  4. Susan Goldthorp

    If you have properties in Florida take a look at visulate.com, use the ‘search our database’ tab. For each Single Family Home we provide a rent based on Household income, renter income, market rents and price/sq ft. The variation gives you some idea of the demographics in the area near a house. The rent given for total Household income and renters income is based on a 1/3 of Census bureau statistics for income in a given area. So if market rent is higher than what the reported income indicates what people can afford that can be useful to know. I never look at just one site when getting an idea of the price to rent a property at, they all use different methods that tells a story itself.

  5. Kevin Polite

    Sterling, great article. We invest in up and coming areas and Zillow can be misleading because you can have a renovated property renting for $1200 and one down the block with the same layout and sq footage but not renovated renting for $895. I agree with @joseph Thomas where you don’t want a vacancy nor underpriced, though I lean in the direction of rather slightly underpricing. Tenant will stay longer and you’ll get one faster. If $100 more a month on a $1000/mo property takes a month longer have you really gained much.

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