Last updated Apr 6, 2021
Disclaimer: This article is not legal advice. Any legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances, so you should consult an attorney if you’d like advice on your interpretation of this information or its accuracy. You may not rely on this article as legal advice, nor as an endorsement of any particular legal understanding.
When people think about purchasing or managing an investment property, they probably think about the day-to-day logistics involved -- things like leaky toilets and tenant complaints. In reality, however, these minor hiccups are not the most challenging part of taking care of rentals. Crunching the numbers -- and making them work month after month -- is a far greater challenge and one that will make or break your investment or management strategy.
The first step? Determining what rent to charge based on your market location, property features, and a host of other factors. Developing an accurate rent estimate and using it to gauge your potential profitability is the cornerstone of creating positive cash flow and return on investment (ROI). This guide will help you put all the pieces together to create an up-to-date and useful rent estimate that you can continue to develop and refine in the years ahead.
In this guide, we’ll answer your burning questions about rent estimates, including:
- How can I determine what types of property are comparable to mine?
- What is a vacancy rate and how can I calculate it? Why does it matter?
- Someone is building new rental properties in my market? How might this impact my vacancy rate?
- How do I know whether or not my market is saturated? What can I do if it is?
- Should I raise rents on my current tenants?
- Is there ever a time when I would decrease rental rates on my properties?
- How do I know what price is right for my property and market?
- How do I calculate cash flow on my rental property?
- Should I rent out my house or sell it?
- What do I need to do if I decide to rent out my property?
Here are the topics you can expect to learn about in this guide:
- Rent Estimate the Ultimate Guide
- Knowing the Comps for Rentals Near Me
- Understanding Vacancy Rate
- Rental Market Saturation
- Conditions for Rent Increase and Decrease
- How To Price Rental Homes Appropriately
- When Renting a House Is Better Than Selling It
Developing more accurate and meaningful rent estimates starts with gathering the right data and putting it to work in alignment with your financial goals. Through this guide, you’ll learn how to acquire and analyze the relevant information so that you can make better decisions for each property you own or manage month after month, year after year.
What is RentSpree?
What makes us so knowledgeable about rent estimates, rental property ownership, and management? As an award-winning rental application and tenant screening service, we work with real estate agents, landlords, property managers, and investors throughout the country -- and we understand how to help meet your most pressing needs.
Our Mission For Agents
RentSpree’s mission can be summed up in three words: Simplify, Educate, and Protect.
We know how difficult it can be to attract and onboard new tenants while also taking care of your current renters and your property as well. We are on a mission to simplify every aspect of the rental process so that you have more time to spend on the tasks that matter most to you.
We believe in the power of knowledge. We want you to feel comfortable and confident in the decisions you make, empowering you with the information you need and the strategies that allow you to implement that information to maximize your performance and your property’s value.
We know that there is so much to remember in order to be in compliance with local, state, and federal laws. That’s why we create proprietary tools to keep you and your reputation above reproach.
We work with thousands of properties and their owners and property managers every month. We take pride and pleasure in helping our clients know more, do more, and accomplish their professional and financial goals by streamlining every aspect of the real estate rental process.
What Is a Rent Estimate?
Have you ever wondered how property owners and property managers determine what rent to charge for their rental properties? A rent estimate is a calculation based on a wide variety of factors that influence the value of a rental property. Just as with the law of supply and demand, the rent estimate allows you to analyze the market factors and property features that impact your rental property, then apply those findings to determine an appropriate rental rate.
What makes an appropriate rate? It’s one that minimizes days on market and maximizes the income you can expect from the property each month. It allows you to optimize the property’s value while also taking into account what the market in your area will bear.
A rent estimate isn’t just a one-time undertaking. By establishing a baseline rent estimate, you can continue to develop it over time as your property and your market changes. You can apply new information to your rent estimate to keep it current so that you always understand your property’s potential value.
What can you expect from this guide?
Whether you are:
- An experienced investor looking to maximize the value of each of your properties
- A property manager seeking to add value through meaningful data-gathering and analysis for the property owner
- Just starting out in real estate investment or management and looking for a reliable way to determine potential rental rates for your property
This guide will help you create a systematic approach to financial planning for your property. In the process, you’ll learn more about the properties in your area, you’ll determine how to add value and create a unique value proposition (UVP) that informs your branding, marketing, and management.
You won’t just get an overview of the process behind developing a rent estimate. You’ll also find actionable, useful tools that you can put to use in each phase of your rent estimate’s development. From sample documentation to mathematical formulas, we’re creating a resource that you can return to again and again, as long as you own or manage your rental property.
What is the purpose of identifying comparable properties?
Whether you are managing a studio apartment or an estate home in a gated community, you need to ensure that you are comparing apples to apples when you develop your rent estimate. That means identifying the properties in your area that are similar to your property across a variety of matrices.
In addition to identifying comparable properties, you can track them over time in order to better understand movements and patterns at work in your market. You’ll find out what other managers and owners are doing to make their properties more desirable and develop strategies to maximize the value of the properties you represent.
How can I calculate vacancy rate?
Although it is a deceptively simple calculation, knowing your vacancy rate and that of comparable properties in your area is an important part of optimizing your performance as a property manager. Find out what types of floor plans are sitting empty and learn how to respond to shifts in your local market as they occur.
We’ll teach you how to determine vacancy rates for your market and even offer you strategies for reducing your vacancy rate. In addition, we’ll help you think long-term so that you can plan ahead for what’s next in your local area and respond effectively to changes as they occur.
What is rental market saturation?
Determine what factors affect rental market saturation and how to decide how much space there is for your properties in your current market. In addition, you’ll determine how to adjust and adapt in the face of a saturated market in order to make your properties stand out so that they spend fewer days on market and enjoy optimal positioning.
What conditions contribute to an increase or decrease in rental rates?
Have you been raising the rent every year as a matter of course? Rental rate increases shouldn’t be taken for granted -- they need to be responsive and strategic. Find out how to determine when it’s time to raise rental rates and how to justify those raises to your tenants. In addition, you’ll find out when a rental rate decrease makes sense and how it can pay for itself through higher occupancy rates.
In addition, in order to help keep you in compliance, we’ll provide you with a completely customizable tool to notify your tenants about their rent increase and make it easier for you to gather their responses. We’ve done the hard work for you so that all you have to do is plug in your information and send it to your renters.
How can I determine how to right-price my rental properties?
Put together all of the market information you’re gathering in order to develop a pricing strategy that works for your rental properties and for your financial goals. Learn how to implement a rental rate that reduces vacancies while maximizing profitability. Learn what factors to take into consideration as you calculate the rent you’ll need in order to ensure consistent return on investment.
When is it better to rent a home rather than sell it?
If you’ve inherited a property or are relocating to a new market, you may have the perfect opportunity to begin building a real estate rental property portfolio. Not sure you’re ready to take the leap? We’ll talk about the components to take into consideration and help you look at the relevant market, management, and personal finance factors that can help you determine whether you are ready to begin living the landlord lifestyle.
Crunch the Numbers
You know the old saying: “Failure to plan means planning to fail.” It’s easy to get sidetracked by the day-to-day requirements of property management and lose sight of tracking and evaluating the market and your property’s financial performance. However, by implementing a consistent, ongoing process for data-gathering and developing accurate rent estimates you can ensure that you’re always maximizing your property’s profitability.
Struggling to keep up with all of the information you need to better manage your property and position it in your market? Consider the following strategies:
- Don’t reinvent the wheel when it comes to data evaluation. Develop a consistent, ongoing process and platform for gathering and analyzing your numbers so that you can track it incrementally and over the long term.
- Use time blocking to set aside uninterrupted time in your calendar for the data gathering and analysis that is so important. Carve out time each week, month, quarter, and year for the tasks that you need to accomplish then pre-schedule them in your online calendar. Keep this time sacred and treat it just like you would your most important appointment.
- Think outside the box when it comes to analyzing your data. Don’t just use it to inform your rental rate decisions -- use it to help you analyze your market and comparable properties as well. Examine your marketing, potential improvements, and management strategies in light of the numbers to streamline your operations and outperform the competition.
Remember, the time and effort you put into analyzing your property’s performance against comparable properties in your market will allow you to stay on track and even improve profitability and return on investment. Let this guide inform your strategy so that you can get the results you want.
Continue to Chapter 2: Knowing the Comps for Rentals Near Me or jump to a different article.