Setting the rent amount for your property can be a daunting task, in fact one small mistake can cost you a year or more of lost rental income. There are many methods available to determine what fair market rent can and should be and in this episode we cover several of the most popular.
5 ways to set fair market rents
- Stay Current with economic and business conditions in the area: Knowing what is going on in your market will serve you well, for instance, in my small town developers are building a large multi family development. Its my feeling that in the short term this could increase rents as the developer fills up newly built apartments. the down side of this is that during a recession, the larger apartment communities are often first to drop rents in order to maintain occupancy levels. Soon, small investors follow suit which I am not keen on.
- Use Rentometer and Craigslist to stay up to date on comps: our show sponsor Rentometer is our go to source for finding comparable properties that have been rented recently. By using factual historical data we glean a good picture of what’s happening in our local market. What I like about Rentometer the most is the ability to separate the results based on whether the property is a house or an apartment. I find this very helpful in determining a more accurate result.
- Talk to property managers and appraisers: These practitioners are a valuable resource because they are immersed in the rental arena every single day. The rental amounts they give are often conservative, in order to make it easier for them to rent your place out. I usually add a little to what they say to arrive at a more reasonable rent amount that allows me to also properly maintain the property.
- Section 8 Rental Amounts: I know what you are thinking..”NO WAY” but I am here to tell you that Section 8 rents are often above market rents in many markets across the area. This is a great data point to use to show a tenant that your rent is fair if slightly below Section 8 standard rates. To find the rates for your area, visit your local housing assistance office and even better, have your property “Section 8 Qualified” to obtain a more accurate figure. My personal belief is that these tenants can be a hassle free solution to many landlords provided they are good landlords that take good care of the property and better care of the tenants. if you treat any tenant poorly, you can expect a less than satisfying relationship so simply be good to your tenants
- Check statistical resources: Markus Millichap, etc, look at for sale listings of like kind properties that often provide demographic data. I often look at listing on loop-net and from deal sourcing that my team does to see what research the brokers have done to determine the fair market rents. Even if they embellish on the rents, they will often include their data source which allows my team to use the same sources, even if we come up with a different end result that is more accurate.