Published by VerticalRent, your Tenant Screening Partner
Naturally, as a landlord, you want to make sure you get the most rent possible for your property. However, it’s important to keep in mind that you must price your rental appropriately and in line with the local market. Below, we explain how to research your local market to ensure you get top dollar for your property.
Whether you are just starting out or you are an experienced landlord, it’s important to research the rental rates in your local market. You should do this regularly to make certain you are making the most of your rental property income potential. While it does take time to do this, this one step can help you avoid overcharging, which could result in vacancies, as well as making sure you do not charge too little. When done properly, market research can help you reduce vacancies, attract high-quality tenants, and keep your profits high.
What Is Market Rent?
Before we get started in reviewing how to perform market research, it’s important to define market rent. This refers to the going rental rate for properties within a specific area. As is the case with most things, the rent is based on what the local market is capable of absorbing. This is precisely why it is so vital that you perform this type of research. You cannot simply set a rent and expect someone to pay it.
First, consider whether your property is multifamily or single-family, because it does make a difference in terms of the amount of rent you can charge. Generally speaking, a multifamily property will command less rent than a single-family property. The reality is that even a duplex is not going to receive the same rental rates as a single-family home. Renters prefer the privacy of a single-family property and will pay more for it.
Methods and Techniques for Researching Fair Market Rents
There are a few different methods that you can use to research local rental rates. One option would be to simply drive around the neighborhood and keep an eye out for properties that are available for rent and then call to inquire about the rental price.
Another option is to check the local MLS. To do this, you will need to look for listings online, such as on a site like Realtor.com, or contact a local real estate agent. You could also look for rental listings on Craigslist and similar online classified sites.
Contacting local property management companies could also provide you with information about the going rates for rental properties, as could speaking to members from the local landlord association, if you have one in your area.
You might also find it helpful to use an automated market rent determination tool, such as Padmapper, Rentometer, or Zillow, but keep in mind that it’s still a good idea to confirm these estimates by performing some actual research in your area.
The U.S. Department of Housing and Urban Development, or HUD, also compiles a list of Fair Market Rents each year for more than 2,500 metro and non-metro counties. These market rent prices are developed for determining the rental voucher amounts of government subsidized housing programs, including Section 8.
What does this mean for you? As a landlord, you are probably all too well aware that location is everything when it comes to real estate. If you own rental properties in a lower-income area, the HUD Fair Market Rent information could prove to be helpful to you. On the other hand, if your rental property is located in a more affluent part of town, this information is probably not relevant.
Factors Affecting Rental Prices
In gathering your research, you will likely find there to be a broad range when it comes to rental prices in your local area. This is likely because not all properties are the same. Just as single-family properties tend to command higher rental rates than multifamily properties, there are many other factors that can affect rental rates. These factors include:
- Number of bedrooms
- Number of bathrooms
- Pets allowed
- Square footage
- Parking
- Washer/dryer
- Location
- Lawn
Obviously, properties with more bedrooms and baths, with more space, that allow pets, that have more parking, and that are located in a highly desirable area will be able to command a greater rental rate. You should also adjust for any amenities your property either possesses or lacks from similar listings in your area. For instance, if your property has upgraded features that other properties do not, you should add to your rental price. If other similar properties in the area have certain amenities that your property does not, you will need to lower your rental rate.
Whether you choose to allow pets in your rental is naturally a personal decision. You may find you have more rental prospects if you do allow pets, at least with some restrictions, such as only small breeds. On the other hand, many landlords are naturally wary of doing so because they fear damage to their property, and with good reason. If you do choose to allow pets, even with restrictions, keep in mind that you can usually ask a higher rent to compensate for the risk you are incurring. You may also be able to charge a reasonable pet deposit.
You should also consider your minimum lease requirements because they can influence your rental rates. For instance, if you offer a shorter lease, you may be able to command a higher rental rate. Likewise, if tenants are signing for a longer lease, you may need to adjust your rental rates accordingly. If your rental property is located in a homeowners’ association, it’s important to check the rules, as some HOAs will not allow owners to rent their properties on short-term leases.
Is your unit furnished? A furnished rental is usually able to command more rent than an unfurnished rental. Bear in mind that the condition of the furnishings will likely affect how much more you are able to command for a furnished unit than for an unfurnished unit.
What Tenants Are Looking for in Rentals
Just as with homebuyers, prospective tenants are all looking for certain things in a rental in order to be willing to pay top dollar for a property. Some of the items that tend to be at the top of the priority list for renters include:
- A property that is clean and well maintained. The reality is that renters are not going to pay top dollar for a property that is not well maintained. Quality renters are looking for properties where maintenance will not be an issue and if there are any problems, the landlord will handle them without delay.
- Location. A property situated near essential services will always garner higher rents than a property in an outlying area. Properties located near schools, shops, leisure facilities, and transportation are most highly valued among renters.
- Storage. Most renters today are looking for rental units with ample storage space. Everyone today seems to have more stuff than ever, and they need a place to store their belongings without also having to rent a storage unit. If your property provides extra storage, you will likely be able to ask a higher rent.
- Amenities. Appliances, such as garbage disposals, dishwashers, washers/dryers, etc., are practically considered must-haves in rental units today. If your property features these items, you will definitely be able to charge a higher rent.
If your property has these features, you can rest assured it will appeal to a larger range of tenants who will be willing to pay more to feel comfortable.
First Impressions Matter for Rentals, Too
You should also keep in mind the importance a first impression a rental property can make on a person when walking through the door to view the property. Updates can be tremendously helpful for boosting that first impression, particularly when you are competing with a large number of other properties. Before showing a property to prospective tenants, always make sure the carpets are clean and the paint is fresh. Many landlords make the mistake of trying to fill a vacancy so quickly that they do not take the time to freshen it up properly following the last tenant. In some cases, you may not be able to allow much time between rentals to fill a vacancy, but taking the time to freshen up a unit and perform some updates can go a long way toward helping you get the highest rental price possible. It's also important to take great pictures for marketing purposes so prospective applicants will be able to see how great the property is before they physically tour it.
Bear in mind that you will also need to consider whether there are any restrictions or government controls regarding local rents. In some areas, there is rent control, which can place an artificial control on the market, so you will need to know if that is the case when you are evaluating the local market.
Testing the Market
Once you have decided on a rental price, it’s a good idea to give it a test run. This can be particularly important if you have determined that your rental rate should be greater than the average market rate for your area. Offer your property at the test rate for one to two weeks. Doing so will give you a good idea as to how prospective renters feel about your property and the asking rent. If you have a lot of inquiries, you will know that your rental rate may be low. Conversely, if you receive few responses, you will know that your unit is priced too high.
Keep in mind that if you do opt to give your rental price a test run that you do so with caution. This must be handled carefully, or you could find yourself facing potential legal trouble. Some landlords have been accused of a practice known as bait and switch by advertising a low price and then charging a higher price. Not only is this unethical, it is also illegal.
It's also important to pay attention to the number of people who actually follow through with appointment to tour the property. In some cases, landlords may notice they have a number of phone calls but prospective renters frequently cancel or never show up for their appointment to see the property. When this happens, it’s usually an indication that either your property lacks curb appeal or that competing properties are priced better.
Suppose you show the property to a larger number of people, but you do not receive any actual applications. This could be an indication that you need to evaluate the interior of the property and consider making improvements or lowering the asking rent.
You also should keep in mind that negotiations can take place when renting a property, and if you are not planning to work with a property management company, you will need to be prepared to handle this on your own. If you have taken the time to do appropriate market research, you will be better prepared to back up your asking price. Always make sure you are aware of all of the local and federal laws as they pertain to your rental unit. If you work with a property manager, he or she will handle this for you, but if not, you will need to be sure you are up to date on all of the relevant laws to ensure you do not break one unwittingly.
Conclusion
Ultimately, the amount you charge for rent will be based on what the current market is seeking at the time that you list your property for rent. By conducting research, you will be able to establish a fair market rent value for your unit. However, keep in mind that fair market rent values can and will change over time, so it’s important to stay on top of this to ensure your property remains competitive.
