How to Calculate Market Rent for Your Investment Property

If you want to maximize your Net Operating Income, then you need to maximize your rent. But that also means that you must know where the rental ceiling is. In order to know how much rent you should charge, you need to calculate the market rent for each of your rental units. This article will show you how to figure out the fair market rent.

What are You Renting?

Before you grab a calculator, first create a summary of your rental unit(s). Is it an apartment or a house? How many bedrooms and baths does it have? Does it have private parking or even a garage? Is it furnished or empty? What is the condition of the unit? Are there any features that make this unit special or unique?

Compare Apples to Apples

The best way to calculate the fair market rent for your unit is to compare it to other rentals. It is important to compare your unit to other similar units. Residential apartments and houses are classified based on the number of bedrooms and baths. Rental houses also include the square footage as a major factor.

When looking for comparables, make sure they have the same features as yours. If you have a 2 bedroom/1 bath apartment, do not compare it to a 3 bedroom/2 bath house. Also, make sure you stay in the same neighborhood as well.

Where to Find Comparables

There are some really good sources to help you figure out what to rent your unit for. As you find comparables, keep a record of the information and the date you found them and whether the unit was rented or not. This will be good for future reference and to measure rental rate increases over time.

Ask Your Property Manager

The easiest and most reliable source of information is going to be your property management company. They make it their business to stay on top of what is the market rent. The more rent they can get for your unit, the more money they earn. It is in their best interest to keep scouring the market for more data.

Check the Newspaper

Check out the classified ads in your local newspaper. Do not be afraid to call a few listings to get a little bit more information. They do not have to know that you’re a landlord not a tenant. Just ask them the same questions we asked you at the start.

Visit Craigslist

Another good local source of rental data is Craigslist. This is a great place to find plenty of rental comparables in your area. You can call on these listings or email them for more information.

Stay Away from National Internet Sites

It can be tempting to cut some corners and race over to Zillow, Trulia or Rentometer and see what they say. The problem with these sites is that they are only estimates based on general data which is often out of date or even inaccurate.

According to Zillow, “Nationally, the Zestimate has a median error rate of 7.9%.” Imagine if you base your market rent off their information and they are off by 8%. That 8% could represent your total Net Operating Income. Trulia is even less accurate. According to their data, their median rate of error is 12.2%. Ouch!

Rather than trusting your profit margin to a “secret algorithm,” why not spend a little time and calculate your market rent off the most recent local data that you can find. Not only can you advertise your unit with confidence, but your bottom line will reflect your understanding of the market. If you are feeling a little overwhelmed by the process, feel free to contact your property manager. They would be more than willing to share their data with you.

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