Determining the current market rental rate

The Union's Showcase can provide insight to determining a current market rental rate

 

Some of you may recall the article I wrote in the last edition of the Showcase titled, Becoming a Successful Investment Property Owner.  I touched on four fundamental steps investment property owners can take to be successful in renting their property.  This is the first of a four part series addressing each step in detail. 

As you may remember, step one said, “First, determine the current market rental rate.  This can be done by reviewing comparable properties for rent with the same features, amenities, and location as your rental.” 

This step may sound easy and straightforward, but it takes experience, practice, and market knowledge to accurately price a rental property at a current market rental rate.  Why is this so important?  Incorrectly pricing your rental can lower your profit in the long run. 

Let’s explore some simple math.  Assume that a prospective tenant approaches you today and offers to pay $1,250 monthly rent on your property that you have advertised at $1,300 per month.  Should you accept the offer? 

Do the math.  If you accept the $1,250 instead of $1,300, by the end of a 12-month lease you will have received $600 less than you had projected.   However, you also have to analyze how much longer your property would have to sit vacant on the market to cover that $600 in lost rent? 

In other words, $1,300 per month can also be calculated to $42.74 per day ($1,300 multiplied by 12 months, divided by 365 days).  If you reject the prospective tenant that offered $1,250 per month, you only have 14 days ($600 lost rent divided by $42.72 per day rent) to rent the property to another tenant at $1,300 per month before you end up with the same money out of pocket as if you had taken the $1,250 prospect.

Aside from the math, as a general rule, you should always reevaluate your rental rate if the vacancy is being filled slower than anticipated.  In determining the rental rate, do not compare your property to occupied units.  That is not your competition.  Compare your property to other vacant units for rent.  Keep track of how long these comparables have been on the market.  Longer vacancies usually mean the rent is too high.    

Finally, make sure you select good comparables.  Are they in the same neighborhood as your property (i.e. Alta Sierra, Morgan Ranch, Banner Mountain, etc.)?  Do they have the same features and amenities as your property (i.e. condition, age, size, style, etc.)? 

Barrett Property Management is happy to help in determining the current market rental rate of your rental property.

Related Articles:

Becoming a successful investment property owner

Showcase 3/14/13 Article regarding Real Estate and Investment
Amelia Barrett’s article: Determining the current market rental rate, was featured in the 3/14/13 Showcase edition of The Union Newspaper