Whether you own or manage one rental property or hundreds of rentals across the country, you need to be able to set fair market rents confidently. If your rent is set too high, it can sit on the market and you will miss out on monthly rental income. And if the rent is set lower than the competition, simply put, you will leave money on the table.
As we know, rents vary greatly from market to market, but can even differ from one street to the next within a single neighborhood. Obviously, numerous variables impact the rent you can charge for your rental unit including location, type of building (duplex, apt. building, etc.), size/square feet, age of unit, # of beds/baths, and amenities (i.e. Parking, AC, pool, roof deck, etc.)
Don’t be fooled that any one rent comp, property manager, local real estate agent, etc. can tell you the perfect fair market rent for your property. We recommend that you tap into a handful of resources to help you set rents confidently.
1. Find some rent comps to give you a starting point. Check local apartment listings using the local newspaper, use online apartment guides, or websites like Craigslist and Rentometer to get a feel for the “going rents”. Rentometer is an excellent resource to give you historical rent trends for the area and a good starting point rent. You can further refine the rent from there by using some of the suggestions listed below.
2. Stay up to date on the economic and business activity in the local market (i.e. Is it thriving? Are stores closing down?). Economic activity is one of the key drivers of rental housing demand and it can impact the rental market in unique ways. For example the current economy in Boston, MA is hot! Rental housing is in high demand, leading many renters to forgo amenities and perks in favor of securing a lease landlord can afford to make fewer concessions when negotiating. Check out rent comps for this South Boston neighbohood: Rentometer Neighborhood Rent Comp Report - South Boston, Massachusetts
3. Check occupancy rates for your area. Are the occupancy rates trending upward? Good! The stronger the desirability of a rental, or neighborhood, typically the higher the occupancy rate, - and higher market rent. It’s a question of supply and demand. Factors that can impact occupancy rates include local millennial population, employment trends, housing supply, and new construction growth, rent prices, and the location & condition of the rental property.
4. Take a tour of a few local rentals. Go on a couple tours of other similar buildings/properties in the area. Pretend you’re a renter or looking at the property for a friend or relative that’s relocating. Get an idea for the condition of the property, the amenities, $/SF, etc.
5. Chat with a local real estate professional about their take on the market or a specific neighborhood. Local experts (property managers, brokers, agents, appraisers, and lenders) are especially good at identifying the drivers of housing supply and demand unique to your market – jobs, local ordinances, building permits, zoning for a new apartment building, etc.
6. Seems basic, but use “rent per square foot” whenever possible as a benchmark. This allows you to encapsulate into a single number all the subjective variables of rent and provides you a basis for comparison across different units, locations, amenities, etc. Watch: How to Read a Rentometer PRO Report
7. Check your local apartment or rental housing association for research and other information they may provide about local rent levels – past, present, and future. This is especially important for real estate investors and developers.
Making sure your property is renting at (or close to) fair market rent is as much of an art as it is a science. However, with good current and historical rental data and a thorough understanding of the local market and market conditions, you can set rents with confidence.
About the Author: Liz Boksanski is the Director of Client Operations at Rentometer.com
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