Updated May 13, 2020
When setting up your rental properties, one of the first things you'll have to consider is how much to charge future renters. It might be tempting to push your rents as high as possible, but this can sometimes be a critical mistake in securing tenants. Having an accurate sense of what people are willing to pay for your property and using rent comparison analysis correctly is essential to success in success as a landlord.
How To Keep Your Rental Property On Par With Your Competition
If you're renting out the property, ultimately, the goal is to see profits. After all, a survey by Better Homes and Gardens Real Estate revealed that 96% of people who have invested in real estate believe their decision helped them achieve financial success.
When you buy a rental property, you should have an asking rent in mind before making an offer. This allows you to buy knowing at your number; you will have cash flow as soon as the unit is full. However, because investors have different goals by investing in property, lack of research can push many investors into accidentally overestimating the value of their property to earn the most money possible. However, shooting too high can push potential renters away from your property in search of more affordable alternatives.
Comparing To Competitors
One easy solution to avoid over-valuing your rental property is to compare your rental prices to those that your competitors are offering. Seeking out comparable properties and averaging out their rental prices can give you a sense of just how much you should be charging, given the overall real estate market and your particular location.
You can use local resources such as Craigslist or local newspaper listings to see what people are currently asking. You could also contact a few property management companies to see what they are charging for a similar unit. That being said, sorting through rent statistics and property reports one by one is time-consuming and inefficient.
Seeking Out Statistics
When you're looking at rent comparison analysis and rent estimates, using a landlord app or neighborhood search tool can help. The digital era has made it far easier to find rent estimates without having to sort through individual listings. Additionally, rental property apps can simplify the process of obtaining accurate numbers for calculating your best possible rental price. This way, you'll be able to compete with other investors in the area without the added effort of finding rent averages.
For example, using the Rentometer tool, you can look for the average rental amount for a two-bedroom, single-family house in a quiet neighborhood in Minneapolis, MN.
According to the report from Rentometer, 50% of the rents in this area are between $1103/mo and $1612/mo; and, the average rent in this area is $1358/mo. Based on those numbers, along with a favorable description and map of the area, the proposed $1,300/mo asking rent would be a great deal.
The Quickview tells us more than the current asking rent is a good deal. It also tells us that this landlord could be asking for more and still be in a reasonable range. Currently, they are leaving money on the table every month. With 50% of the properties asking for a rate higher than $1300/month this landlord could do some digging and compare the square footage, amenities for the property and area, and updates to the property and possibly raise their asking rent.
If they didn't want to ask for that much more, they already know they are charging less than half the properties similar to them. Even a couple of hundred dollar increase can be the difference between breaking even as a landlord or making a profit.
Success As An Active Landlord
Keeping your rental prices comparable to the competition is key to success as a real estate investor. Supply and demand for rental property changes over time, tenants may get a job out of the area, and new people move to town. Some move from an apartment and buy a house; others downsize from a home to an apartment.
Watching what local employers are doing and running a new rental comparison report each time a tenant comes upon renewal or gives their 30-day notice, will keep your rents in-line with what's going on in your market. To learn more about rent comparison analysis or test your rental prices against a rent estimator tool, contact Rentometer today.
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