What is your rental worth?
Every home owner should ask themselves this question, TBPM is here to provide answers.
A rental market analysis (RMA) is similar in concept to a comparative market analysis (CMA), which is typically done by a Real Estate Broker specializing in sales for listing clients. Both reports are created by evaluating multiple comparable properties and calculating factors, like similar features. However, an RMA is created specifically for rental property owners and/or investors to determine the investment potential of a market or property. By conducting an RMA before purchasing a property or listing a property on the rental market, clients can save themselves from their asset underperforming and losing money.
Clients can use an RMA to make a decision before they purchase a property or to determine how much to charge for rent. When it's done correctly, using the criteria below, a rent analysis can provide key insight into the rental market and potential profits.
We have deep insight into the rental market to provide accurate data to give you information to make a informed decision. Our membership with NARPM and RHAWA allow us updated analytical data for our local market.
The next thing we do in creating a rental market analysis is to use a spreadsheet to organize all of the data and calculations throughout the rest of the process. It may seem like a simple step, but failing to plan for the organization of your data can significantly complicate the entire process. If you try to simply list notes and calculations on a piece of paper or digital notepad, it will quickly become overloaded and unreadable. Instead, we develop a spreadsheet with places and algorithms for your calculations. The right spreadsheet will keep information organized and easy to read, allowing you to clearly see the numbers and information to make conclusions about potential properties. Plus, you don’t have to spend months developing the perfect spreadsheet format—you can use ours.
Subject Property Insight
Our process of identifying your property features is unparalleled. We make sure we know the most about your property so we can find comparable properties. Criteria includes, address, status of property, number of bedrooms, number of bathrooms, concessions offered, building amenities, square footage, list date, desired listing price, days on market (DOM), with a link to the listing for easy access.
Evaluating the neighborhood through rental market research is a key step of creating an RMA. It’s vital to verify that the neighborhood you’ve chosen is desirable for renters and will lead to a profitable investment. This decision is not as simple as looking at the neighborhood or asking residents if the neighborhood is “good,” since that’s subjective.
Instead, we look for specific data that shows how properties in your desired neighborhood or area appreciate and attract quality renters who will respect the property and lease. Choosing a neighborhood doesn’t equate to a certain dollar amount for your rental pricing, but it does give you an overall picture of whether or not you want to purchase a property to rent there.
Some of the most important factors when evaluating a neighborhood include:
Access to public transportation and/or places to park
High walkability score
Good local private and public school ratings
Nearby amenities and attractions, including parks, libraries, and cultural venues
Easy access to dining and shopping
Businesses that are open (you don’t want to buy near a deserted area unless you know it is being developed)
Things to avoid when choosing a neighborhood:
High or increasing crime rates
Multiple distressed or vacant properties on one street
More than a few businesses that are permanently closed
Noisy areas (e.g., proximity to a factory, police station, or airport)
Streets that aren’t cared for (e.g., excessive potholes, crumbling sidewalks, and defunct streetlamps)
Most tenants want to live in the area because it’s clean, safe, convenient to amenities, and easy to get to. You can’t change the curb appeal of a neighborhood, but you can change the curb appeal of a property. After evaluating a neighborhood based on these basic criteria, we will be able to clearly identify whether this neighborhood is a good candidate for a rental property.
After we’re familiar with the surrounding neighborhood, it’s time to find a few comparable properties that compare to the subject property. It is best to include at least five comparable properties, if available, including a variety of properties currently on the market and those that have recently been rented.
Generally, comparable properties must be in the same neighborhood and be similar in size, amenities, and condition. The main factors to consider when searching for comparable properties for your rent analysis include:
Proximity to each other: In an urban area, they should be within a three-block radius. On the other hand, properties in a suburban area should be within a couple of miles, and rural areas may be even further away.
Square footage: All properties should be within a couple of hundred square feet in size.
Rent price: Although you may not have the final calculations for your rent price yet, find properties for rent in a similar price range that you are expecting to charge.
Number of bedrooms: Must be the same in all comps; don’t compare a one-bedroom with a two-bedroom.
Number of bathrooms: Should be similar, although you can compare two and 2.5 bathrooms.
Lot size: This is an important factor for single-family homes in particular.
Condition: Needs to fall in the same category, such as updated, original, distressed, etc.
Amenities: Similar amenities in the unit and building; if not, then you can adjust for them.
Days on market (DOM): If a property has been sitting on the market for over 60 days, then it may be priced too high or have some type of flaw. You can generally adjust the price down by about 5%, depending on the reason the DOM is so high.
With about five to seven comparable properties identified, we’ll be able to start gathering some valuable insight into rental market trends and generate a thorough rental analysis report. The next step of the rental analysis will include calculating the prices based on property features and amenities, which will help derive an average rental rate and rent projection.
In order to identify those details, you’ll need to do some further digging into the comparable data by calculating the price per square foot, price adjustments for amenities, and potential vacancy and occupancy rates. Keep in mind that by using our property data spreadsheet, these calculations will be done automatically.
Rental Price Analysis
After taking all the steps to create a detailed rental market analysis, you’ll be well-versed in the local rental market and average prices. This is key for the process of evaluating potential rentals and setting rent prices, but many rental owners/investors don’t realize how valuable the data from their RMA can be for the process of choosing, purchasing or renting an investment property.
When evaluating potential rental properties, you need to consider housing prices, inventory, and supply. The reality is that not every home for sale is a good candidate for a rental property. If the price of a home is too high for you to profit on a rent payment, then it will simply not be a proper investment.
On the other hand, if there are plenty of homes available at a low enough price in one neighborhood, this can also be a red flag. For instance, if there are 10 similar rentals available on the same block, you may not have enough demand (renters) to meet the supply of inventory. This means that your property may sit on the rental market and you may end up being cash flow negative due to your carrying costs and lack of rental income.
Knowing the average rental rate per square foot is key during the house hunting process. You can easily check available properties and find out if they can be cash flow positive given your down payment and monthly carrying costs (which include your mortgage payment, taxes, and insurance).
Please contact our office to speak with a friendly Property Manager to find out the affordability of working with us. We keep our fees competitive, and our service focused culture is unparalleled.
If you are looking to invest in property for the rental market, we can refer you in the right direction with a quick call or email, reach out to TBPM today to see how we can help.