It's time to talk about rental comps -- and by comps we don't mean freebies but comparable properties. Property owners and agencies know that staying competitive in hot rental markets is essential to realizing your full earning potential, as well as helping you maintain excellent reviews and ratings online. But the process of understanding what is the right price to set rent can be consuming. Many owners are left asking, what is the cost of other rentals near me?
Fortunately, there are ways to better understand your local market.
What are real estate comps?
You'll usually hear the term comp when discussing MLS listing values for property for sale. Understanding comparable properties for sale can help you understand the value of the home you are renting out, which in turn can provide a range based on total property value. Landlords typically get between .8 percent and 1.1 percent of the home’s value for their monthly rent according to the Mortgage Reports. This means that a $100,000 home would usually rent for between $800 to $1000.
So how do you determine what is a comparable property?
Comps are determined by reviewing properties that recently sold. The properties included should be those that have sold within the last 6 months. In addition to finding properties of similar style and square footage, comps should also include:
- Location including nearby transportation and amenities
- Square footage - both inside and outside
- Number of beds and baths - total qualified living spaces
- Year built (within a 5-year range) - houses are best compared at from the same age
- Layout - singles story, duplex, colonial, non-standard layouts
- Condition - the quality of materials used, regular maintenance
- Upgrades and finishes like landscaping, siding, roofing, and more
Find 4 to 5 comparable properties if possible. If there aren't any good area matches, do your best to match up as many features as you can and expand the number of homes reviewed for a better average.
Finding Comparable Data
Traditionally, MLS comps were only available through MLS agents. If you have an agent in your organization or property management company, this is still a great way to get your data. If like many independent property owners you don't have a real estate license, there are still a number of options.
One method is by using public property records (think city hall). Property sales are public record, and Homelight provides an excellent guide if you need assistance searching these listings. You can also do your research using commercial property groups, Bigger Pockets suggests Redfin, Zillow, Trulia, Realtor.com, or Property Shark.
Stay aware that unlike city records, these listings will often have both a sale value and an estimated home value. This estimated home value can be handy for buyers and sellers but is not reliable for generating your comps. If you really have trouble finding data, you can also try paid listing services like Home Smart Reports and RealQuest.com.
There are always some additional factors to consider when setting your rental price, beyond simple property value. Research changes in your local area. Explore changes to school zones or recent school quality ratings. Also, check for invasive construction projects and detours. Is the nearest bridge out for repair?
Explore the unemployment rate in your area, an issue coming to the forefront of recent conversations, high unemployment may lower rental demand. You'll also want to stay aware of county and city boundary lines, as distance is not always the strongest factor in creating a house comparison if there are vastly different landlord-tenant laws across legal boundaries. And of course, don't forget HOA bylaws and fees.
Google the phrase "rentals near me" to get a good idea of your current market, then dive deeper to find some accurate rental comps in your area. Your diligence will pay off when it comes to setting a competitive and affordable rent.