The ultimate rent estimate guide

Disclaimer: This article is not legal advice. Legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances. Consult an attorney for advice on your interpretation of this information or its accuracy. You may not rely on this article as legal advice, nor as an endorsement of any particular legal understanding.

Are you a landlord thinking about purchasing or managing an investment property? If so, you might be thinking about the day-to-day logistics involved—things like leaky toilets and tenant complaints. In reality, however, these minor hiccups are not the most challenging part of managing rentals. Crunching the numbers, and making them work month after month, is a far greater challenge and one that will make or break your property investment strategy.

The first step? Determining what rent to charge based on your market location, property features, and a host of other factors. Developing an accurate rental estimate and using it to gauge your potential profitability is the cornerstone of creating positive cash flow and return on investment (ROI). This guide will help you put all the pieces together to create an up-to-date and useful rent estimate that you can continue to develop and refine in the years ahead.

Here are the topics you can expect to learn about in this guide:

1. The Ultimate Rent Estimate Guide
2. Knowing the Comps for Rentals Near Me
3. Understanding Vacancy Rate
4. Rental Market Saturation
5. Conditions for Rent Increase and Decrease
6. How To Price Rental Homes Appropriately
7. When Renting a House Is Better Than Selling It

What is a property rental estimate?

A rent estimate is just what it sounds like; an approximate amount you can charge for rent every month. The rent estimate allows you to analyze the market factors and property features that impact your rental property, then apply those findings to determine an appropriate rental rate.

What makes an appropriate rate? It’s one that minimizes days on market and maximizes the income you can expect from the property each month. It allows you to optimize the property’s value while also taking into account what the market in your area will bear.

A rental estimate isn’t just a one-time undertaking. Once you’ve established a baseline rent estimate, you can re-calculate it as your property and your market changes. You can apply new information to your rent estimate to keep it current so that you always understand your property’s potential value.

How to estimate rent for your property 

Knowing how to calculate the rental rate for your property can ensure that you are maximizing your rental income while remaining competitive in the market. Below are several factors to incorporate into your rental estimations.

Comparable properties

Start by comparing your property to similar rentals in the area. To gauge market demand, look for properties nearby that are comparable in features, size, and location to see what they are charging. According to Apartments.com the national average rent in the United States is $1,517/month. Since this average can vary widely across different cities and states, research properties in your immediate area. Doing so will help you determine a competitive rental price and identify any unique selling points your property might have. Additionally, understanding the local rental landscape can inspire you to look into potential upgrades or amenities that could increase your property's appeal.

Vacancy rate

Next, estimate the percentage of time your property will remain vacant between tenants. Although it is a deceptively simple calculation, knowing your vacancy rate and that of comparable properties in your area is an important part in getting the most out of your rental. Find out what types of floor plans are sitting empty and have a plan for how you’ll respond to shifts in your local market as they occur. A lower vacancy rate indicates higher demand and may allow for higher rental rates.

Rental market saturation

Then assess the level of competition in your rental market. If the supply of rental properties in a specific area exceeds the demand from potential tenants, it could lead to rental market saturation. This can cause a variety of challenges for landlords, including increased vacancy rates, decreased rental income, and the need to offer incentives or lower rents to attract tenants. 

Rent adjustment

Know when it's appropriate to increase or decrease rent. Increasing rent isn't something you can (or should) do without a clear rationale for why and how.

When setting a rent estimate, also consider the local rental market conditions and tenant retention rates when making these decisions. A well-timed rent increase can boost your income, but raising rents too quickly or too high may drive tenants away. On the other hand, being aware of when to lower rent can help maintain occupancy and reduce long-term vacancies, ultimately ensuring a steady cash flow.

Additional factors that influence your rental property estimate

Section 8 and Fair Market Rents

Section 8, also known as the Housing Choice Voucher Program, is a federal initiative that provides rental assistance to low-income families, the elderly, and disabled individuals, enabling them to afford safe and sanitary housing in the private market. Fair Market Rent (FMR), determined annually by the U.S. Department of Housing and Urban Development (HUD), sets the standard for the maximum rent levels that can be charged for properties eligible for Section 8 vouchers. 

These rates are based on local market data, including the cost of utilities and other housing expenses. When creating a rental property estimate, you must consider FMR to ensure your pricing aligns with affordable housing standards and remains competitive within the market. Understanding FMR can also help you attract Section 8 tenants, ensuring a reliable income stream backed by government subsidies. By aligning rental prices with FMR, not only can you effectively balance profitability with accessibility, but you can also cater to a broader tenant base and maintain compliance with federal housing programs.

Market overviews and trends

Regular market reports can provide crucial insights into the current state and future projections of the rental market such as average rental prices, vacancy rates, tenant demand, and economic factors impacting the housing sector. By analyzing these trends, you can gauge the competitiveness of your rental pricing, identify peak rental seasons, and anticipate shifts in demand. 

For instance, a trend showing increasing demand in a particular neighborhood might justify higher rental rates, while an oversupply of rental units in another area might necessitate more competitive pricing. 

Interest rates

Since interest rates directly impact borrowing costs for property acquisition and maintenance, monitoring interest rate fluctuations is essential for determining the right rent estimate. Fluctuations can affect everything from mortgage payments to property taxes, insurance premiums, and even tenant behavior. While low interest rates can stimulate property demand and increase rental rates, higher rates can raise borrowing costs and slow down the rise in property prices.

Tips for crunching the numbers

It’s easy to get sidetracked by the day-to-day requirements of property management and lose sight of tracking and evaluating the market and your property’s financial performance. However, by implementing a consistent, ongoing process for data-gathering and developing accurate rent estimates you can ensure that you’re always maximizing your property’s profitability.

Struggling to keep up with all of the information you need to better manage your property and position it in your market? Consider the following strategies:

‍Don’t reinvent the wheel: When it comes to data evaluation, develop a consistent, ongoing process and source platforms to automatically gather and analyze your numbers. Take advantage of tools that automate data-crunching so that you can use the time those tools save you to focus on other priorities.

Time block your day: Set aside uninterrupted time in your calendar for the data gathering and analysis that is so important to your rent estimates. Carve out time each week, month, quarter, and year for the tasks that you need to accomplish then pre-schedule them in your online calendar. Keep this time sacred and treat it just like you would your most important appointment.

Think outside the box: Don’t just use the data you’ve collected from your other properties and how they’ve performed to inform your rental rate decisions. Use it to help you analyze your market and comparable properties as well. Examine your marketing, potential improvements, and management strategies in light of the numbers to streamline your operations and outperform the competition.

Remember, the time and effort you put into analyzing your property’s performance against comparable properties in your market will allow you to appropriately price your rental in a way that’s beneficial for every party involved

What to consider before renting out your property 

Weighing selling vs. renting

Making the decision between selling and renting out your property is not always straightforward. Here are some key factors to consider: 

Financial goals: To estimate rent for your property, determine whether your primary objective is immediate cash flow or long-term appreciation. For example, selling may provide a large lump sum of cash right away, while renting offers smaller yet ongoing rental income.

Market conditions: Assess the current state of the real estate market in your area and pay close attention to whether or not. Are home prices are rising or falling.? Is there high demand for rentals and who is the average renter? Understanding these market dynamics can help you make an informed decision about whether selling or renting is the right choice based on your location.

Long-term plans: Consider your future plans for the property. Do you envision living in it again someday? Are you planning to pass it on to heirs? Will you be moving to an area close by or are you planning to leave the state for good? Your long-term vision for the property (as well as your own personal plans) can significantly impact your decision-making process.

Responsibilities of being a landlord

Before deciding to become a landlord you must also be aware of the responsibilities and commitments that it involves. Here are some things to think about:

Legal obligations: If you aren’t already familiar with landlord-tenant laws and regulations in your jurisdiction, now is a good time to educate yourself. These laws govern areas such as lease agreements, eviction procedures, security deposits, and tenant rights. 

Maintenance responsibilities: As a landlord, you are responsible for maintaining the habitability of the rental property. This includes addressing repairs promptly, making sure the property meets health and safety standards, and providing essential utilities.

Time commitment: Renting out a property requires ongoing time and effort. From marketing the property and screening tenants to handling maintenance requests and addressing tenant concerns, being a landlord can be a hands-on endeavor. With this in mind, consider whether you have the time and resources to effectively manage the property or if you'll need to hire a property manager.

Financial considerations: In addition to regular maintenance and repairs, landlords must budget for unexpected expenses, such as vacancies, property damage, and legal fees. It's essential to have a financial cushion to cover these costs and safeguard the profitability of your rental investment.

Acquiring a rent estimate report from RentSpree

There are numerous factors to consider when you lease out your property, especially when trying to determine the right rental price. Thankfully, RentSpree can help. With our custom Rent Estimate report, you can analyze local comparables, competitively price your listing, get accurate vacancy rates, stay up-to-date on market trends, and maximize your profits.

Ready to start pricing your rentals with confidence? Get a rent estimate now.. 

FAQ’s

How much does RentSpree’s Rent Estimate report from RentRange® cost?

Only $19.99

What’s included in the Rent Estimate report?

You will get:

• A rent estimate for your property along with a confidence score for that estimate and vacancy rate
• Rent benchmarks in your area
• County vacancy vs. days on market data
• Rental saturation benchmarks
• Comparable rentals in your area including a map of properties
• County rent trends by bedroom and type
• Area Gross Yield and rental trend data

How does RentSpree’s Rent Estimate report work and how accurate are the reports?

RentRange® uses an advanced rental valuation model that applies predictive analytics on high-quality public and proprietary data sources to estimate the current rental value of a residential property with best-in-class accuracy.

What are the benefits of using RentRange for the Rent Estimate Report?

Whether you own, manage, or are thinking of buying a rental property, a RentRange Property Report will help you:

• Determine the rent rate potential for any property.
• Supplement traditional Automated Valuation Models (AVMs), Broker Price Opinions (BPOs), and appraisals.
• Provide key information about localized vacancy rates, recent and historical county rent trends, and other vital investor metrics to help provide a deeper understanding of the market.

Why is it important to have a rent estimate report?

A rent estimate report is an important tool that can help you gauge your potential profitability as an investment property owner. The report can serve as the cornerstone of creating positive cash flow and return on investment (ROI).

Continue to Chapter 2: Knowing the Comps for Rentals Near Me or jump to a different article.

1. The Ultimate Rent Estimate Guide
2. Knowing the Comps for Rentals Near Me
3. Understanding Vacancy Rate
4. Rental Market Saturation
5. Conditions for Rent Increase and Decrease
6. How To Price Rental Homes Appropriately
7. When Renting a House Is Better Than Selling It