Knowing the Comps of Rentals Near Me
You may be wondering, “Why do I need to know the value of rentals near me?” Well, to create an effective pricing, management, and marketing strategy for the rental properties you own or represent, you need to understand your local market -- and your competition. Consistent evaluation and tracking of comparable properties helps you make better decisions about every aspect of the operation of your rental property, from initial acquisition to the development of an exit strategy and everything in between.
[.blog-disclaimer-text]Disclaimer: This article is not legal advice. Legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances. Consult an attorney for 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.[.blog-disclaimer-text]
You may be asking, “Isn’t a comp just any of the rentals near me?” Well, not exactly.
Comps, or comparable properties, are those properties in your market that are similar in some way to a property that you own or manage and which are either currently on the market or were recently part of a transaction. Properly evaluating and tracking comparable properties can help you better market, manage and monetize your own properties or the properties that you represent, creating more accurate rent estimate and helping you plan for the future.
What makes a good comp?
In order to be considered an effective rental comp, the property should be similar to your property in a variety of ways. There is no point comparing the value of two properties if one of them is fundamentally different from the other. That’s because those two properties won’t attract the same renters and won’t command the same rental rates.
The following categories will help you narrow down what properties will make effective comps for those you manage:
Market
The market for your comp should be similar to the one where your property is located. This doesn’t just mean that it should be nearby -- the area itself should be similar in character and features. Generally comps should be in the same school system and should have proximity to the same local amenities and services.
Take the example of two identical homes located less than a mile apart. If one is in the city limits and has access to superior schools, recreation, and other municipal features, and the other is outside the city limits and is considered part of the unincorporated portion of the county with no amenities and inferior schools, the homes may not be considered comps. Proximity in this case does not equal comparable markets.
Age
A brand new custom-built home is probably not a good comparable property for a mid-20th century home. A historic property is probably not a good comp for a newer property. The age of a property can have both positive and negative impacts on its value and marketability.
In the case of a historic property, for example, while it may be more valuable, it may also have far more restrictions imposed by the local historic district or by a national registry. In addition, upkeep and repair may be far more expensive than that associated with a newer property.
Style
Some home styles are more common than others and are more desirable than others. Comparable homes often have similar interior and exterior styles with similar levels of demand in the local market.
In terms of external style, the homes should have similar curb appeal. For example, in a home of mostly traditional brick-front, two-story homes, a stark, ultra-modern homestyle may stand out for all the wrong reasons, resulting in a lower market value. In terms of the interior, many buyers and renters are looking for open-concept floor plans with an emphasis on space and light. This may make a home with many small, enclosed spaces far less desirable and marketable than an open-concept property of the same size and character.
Size
The property itself should be similar to your property in square footage, bedrooms, and bathrooms and, if possible, should have a similar lot size as well. Remember that size can be adjusted with an addition, a finished basement, garage or attic space, so ensure that no adjustments have been made to the home’s finished square footage.
In addition, there may be additional space on the property, like a garage apartment or guest house, that would add to the square footage of the property overall. There may be outbuildings or property features that are different. This difference should be taken into account in determining whether the property is an appropriate comp.
Character
You wouldn’t compare a single-family home to a condominium or a duplex unit to one in a large multi-family apartment complex. A comparable property should be a similar type of property. In addition, property character is determined by exterior characteristics like the lot size that is typical for the area and the setting, whether urban, suburban, or rural.
In addition, property character may be determined by the neighborhood where it is located. For example, a home in an exclusive gated enclave would probably not be comparable to one in a more typical, open neighborhood with no HOA or special characteristics.
Nearby rental properties with access to a clubhouse, pool, and fitness studio should not be used as comparable properties for a rental property with no neighborhood amenities. In addition, properties located in neighborhoods or complexes with an active neighborhood association may enjoy maintenance and management benefits that are not available to homeowners outside of the community.
Features
You can’t compare a fully updated and renovated house to one that offers only the bare minimum in design and function. You can’t compare a home with high-end luxury finishes to one with builder-grade finishes. Comps should share similar features to your property.
Features can also include exterior spaces like pools, decks, outdoor kitchens, and other elements. Remember that these can impact value in a variety of ways, depending on how typical they are for the local market. For example, while a pool may add value in a Florida neighborhood, it may be considered a costly and impractical feature in a home located in Minnesota.
Tenants
It is a good idea to think about who the potential tenant for your property would be and what other areas or rental properties they might be interested in. Comps generally draw tenants with similar incomes and wishlists. In addition, some features, amenities and locations may be more conducive to single renters, renters with children, or older renters.
In addition, there will be differences between communities that are designed for specific populations, like retirement communities or co-ops that require board member approval before someone can become a resident. It is important to ensure that you take these differences into account when comparing properties and their potential value.
How should you gather information on comparable properties?
You can use a spreadsheet to track your properties along with the comps you’ve identified. Make one sheet for each property that you own or manage, then create columns for comparable property addresses, rental prices, days on market, features, amenities, and the owner or property management company. In addition, if you have identified potential tenant types, create a column for them as well.
By continuing to gather this information and tracking it carefully over months and years, you will be able to gain a better understanding of the factors that pay dividends and make properties more attractive to potential tenants. In addition, you can provide valuable insights and information to the property owner and more effectively manage the properties for which you are responsible.
Why is it important to know the comps for rentals near me?
You’ve heard the saying, “No man is an island.” Well, no property exists in isolation either. Property values are impacted by the values of properties in their market. These comparable properties, or “comps” for short, can have a significant impact on how appraisers, tax assessors, and lenders see the value of the property you own or manage.
By understanding additional factors like days on market and vacancy rate for comparable rentals, you can begin to develop insight into the important factors that drive your market and make your property more, or less, desirable. You can also better understand what strategies owners and property managers in your area are using to obtain and keep qualified renters, thus certifying yourself to answer the question of "What are the comps for rentals near me?"
Now that you have an idea of what makes a good comp, and why they matter, consider how you can use those comps to manage your property more effectively.
Comps help you create a better rent estimate.
By capturing and tracking information associated with comps in your area, you can make better decisions when it’s time to set your property’s rental rates. Keep up with days on market, vacancy rate, and other factors along with rent rates to create your rent estimate and determine what rental rate will allow you to get your property rented in a timely manner.
As you continue to keep up with comps in your market over time, you can determine when it’s time to raise rental rates or when you should hold back to improve tenant retention. By keeping up with days on market and vacancy rate, you can determine what changes you may need to make in order to reduce the carrying costs that can result from excessive vacancies.
Comps help you market more effectively.
Because they help you stay abreast of the features, amenities, rental rates and vacancy rates of properties that are in direct competition with your property, you develop a better sense for what works and what pays in terms of marketing a property. You learn what features are correlated with faster rentals and higher rent rates.
Take a look at the online content and marketing materials associated with the most successful properties in your area. Determine what works for them in terms of branding, messaging, and features. In order to stay competitive, you need to know both your unique value proposition (UVP) and that of the competition.
Comps help you track market shifts.
Are there neighborhoods in your local area that are becoming less desirable than they were last year at this time? Are there new commercial developments that are impacting days on market and rental rates for local properties? Is the local economy or the local job market impacting rental rates and market movement? By tracking properties in your area, you can keep an eye on trends and shifts that can impact your rent estimate and predict changes in your market before they happen.
It’s important to remember that tracking the market over time requires you to be willing to take the long view and to determine what changes are temporary and what changes may have more permanent effects. For example, an economic slowdown may be temporary if it’s the result of one local business closing, only to be quickly replaced by a new company. It may be permanent if the business is not replaced by a new company and if other businesses in the area continue to close or relocate their offices.
Comps help you gauge the competition.
If you are seeing a big difference between your property and a comp, it may mean that there is something else at work. Check out the marketing, management, location, and amenities and find out how to make your own management more effective. Determine whether your competitors have implemented a new marketing strategy or added a more responsive online platform. By keeping up with the competition, you develop strategies to either beat them at their own game or learn from their success.
Perhaps a competing property has an incentive or referral program in place. Maybe they are conducting virtual tours or offering lower up-front costs. The more insight you have into the competition, the more you can implement what’s working for them into your own management and marketing.
Comps help you make smart updates and upgrades.
Are you seeing properties with smart home upgrades moving faster than other comps? Are upgraded outdoor spaces making a difference in days on market? Are homes with renovated kitchens fetching far higher rental rates? When you keep an eye on the features and amenities that pay dividends for renters in your market, you can better determine how to spend your money and what updates will pay off for your property.
How can RentSpree help identify the comps for rentals near me?
RentSpree’s rent estimate report takes the guesswork out of determining what comps are relevant and meaningful as you set rental rates for your property. With a customized report from RentSpree, you’ll not only set more accurate rates, you’ll learn more about your local market, renter preferences, and trends that make the difference in the days ahead. A more detailed report, like the one provided by RentSpree, saves you time and increases your ability to evaluate and respond to conditions in your local market.
Continue to Chapter 3: Understanding Vacancy Rate or jump to a different article.
