How to Determine Market Rent on Rental Property
One of the most important parts of owning rental properties is knowing what your properties will rent for. I am a real estate agent and I am an expert at knowing market prices in my area for homes that are for sale. However, rent rates are much harder to determine, because there is much less information available. There are still many ways to predict what a home will rent for so that you know you will be able to cash flow on a rental property. Be sure to check out our free cash flow calculator here.
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Why is it difficult to determine what a home will rent for?
When I determine the market value is for a home, I am able to pull up sold comparable properties on our MLS system, because I am a real estate agent. I can see what sold, for how much and most of the details of the transaction. However, in my area MLS is not used very often for rental properties. I have to come up with a different way to find rental rates to determine market rent.
With rental properties there is no way to pull up comparable properties that show what a home is actually rented for. In Colorado and many other states, home sales are public record, what a home rents for is not public record. The only way to determine market rent is to look at active listings for rentals or to talk to experts in your area. The most commonly used place to advertise rentals in my area is Craigslist.
How to use Craigslist to determine the market rent on rental properties
Craigslist is a great way to advertise rental properties in my area, because almost every rental property is advertised on Craigslist. MLS is rarely if ever used for rental properties, except for commercial properties. It is still not easy to figure rent rates from Craigslist, because you can only see what is currently for rent, not what homes are actually renting for.
Before I buy a home or put a home up for rent, I check Craigslist to see what is for rent in an area. Rental listings give an idea of what market rents are, but aren’t always reliable. You have no idea if the asking prices are what homes are actually renting for. One way to track if homes are renting is to check Craigslist daily to see if the homes that were previously listed for rent are still listed. There is a good chance that any home that has been rented will be removed from Craigslist. Make a list of homes that are similar to a home you have or are looking at and save the advertisement, especially the contact information. If you check back and that listing was removed, call or email the listing to see if they rented the home.
How to use the Internet to determine market rent on rental properties
You can also perform a search on the Internet to find market rent. Some property management companies may not list their homes in Craigslist, but they may use their website or another rental website to advertise. You can use those listings much like the Craigslist listings to determine market rents. You may also find other rental websites in your area that list rental properties for rent. Each market is different in how they advertise rental properties and what has become popular to search.
How to use a property manager to figure market rent on rental properties
A great resource to for any investor is a property manager. A property manager can determine rental rates in many ways and help investors figure rental rates. You can use their rental listings as a guideline for rental rates as was just discussed. The nice thing about property managers is they usually have a pretty good idea of market rents. You can probably trust a property managers rent listings more than an individual who may or may not have an idea of how to rent a house.
You can also talk to a property manager directly to see what they think market rents are. If you are an investor looking to buy rental properties then a property manager should be happy to help you determine rental rates. If they help you out as an investor you may use them as a property manager at some point. I have a great article here on how to find a property manager.
How to use a real estate agent to determine market rents on rental properties
Some agents are experts on investment properties and some have no idea about investment properties. It is important that you can find an investor friendly real estate agent to help you find rental properties. It helps if the real estate agent can also help you determine rents a well, but not necessary. I would listen to what your real estate agent tells you and compare that to the other information you are able to gather. In areas of the country where real estate agents are a vital part of the rental market, a real estate agent is a huge help in determining market rents.
It is difficult to determine market rent until you actually have a rental home and have it rented. You can get an idea of what the home will rent for with the above methods, but they are not always accurate by themselves. Try to use each method independently and then compare the results to see what you come up with for market rents. I always try to be conservative with my rent estimates to make sure I will have plenty of cash flow on my rental properties.