The Ultimate Guide to Rent Comps

How do you know what a property will rent for? Rent comps… that's how.

Find out how to determine rent comps and interpret them to determine what a property is likely to rent for in this special one-time-only class taught by James on February 3, 2021.

Below you'll find an outline of what was taught in the class. But, first…

Warning

  • I don’t do my own property management
  • I do not typically do my own rent comps… I typically call my property manager
  • Rent is not an exact number and determining fair market rent is NOT an exact science
  • We often start marketing early at a higher number and drop rent based on number of inquiries
  • We are focused on long-term rentals (not short-term rentals)
  • Ultimately, the rent you’re going to get is based on what a tenant is willing to pay in the marketplace based on supply and demand.

Easy, Basic and Advanced Rent Comps

  • I will cover some advanced, overly-complicated strategies for comparing rental properties to attempt to determine what a property may rent for
    • You could think of this… in many ways… like doing an “appraisal” for rentals
    • I’m going to start with this to help you understand the more basic strategy…
    • Most of you will ultimately opt not to use most of this advanced stuff
  • A more basic method is to use a service that gathers up similar rentals, does some math and spits out a range of rents
    • You can remove ones that are obviously not good comparables
    • Will cover how to do this
  • The easiest method is to call your property manager and ask them (that’s what I typically do)
    • Not something you can/should do unless you’re planning to hire the property manager
    • Can they be off? Absolutely!
Ultimately, the rent you’re going to get is based on what a tenant is willing to pay in the marketplace based on supply and demand.

Why Comparables To Determine Rents

  • What will a property rent for?
  • How do you know what a property will rent for?
    • Look at recent properties that were recently for rent to see if the property you’re considering has similar characteristics and is likely to have similar rents
    • Compare apples to apples not apples to oranges
  • If you had identical properties in every way, you might expect them to rent for identical prices
    • Different properties may not be “comparable” and therefore may rent for different prices
  • What makes “properties” comparable?

Property Info Comparable Rent Data

This section of this class is based, in part, on the Comparable Sales classes I've taught in the past.

  • Same or very similar area or location
  • Similar style of property
    • Mobile homes, manufactured, stick built, condo, townhome, SFH, multi-family
  • Same or very similar beds/baths
  • Similar condition
  • Similar year built
  • Similar square footage
    • Prefer comparing Above Grade Finished Square Footage (AGFSF) to AGFSF
    • Make adjustments for unfinished basements
    • Make adjustments for slight differences in square footage by using rent per square foot
  • Similar lot size and zoning of lot
  • Similar extras and amenities like parking

Most Important Factors for Rent Comps

If I had to prioritize the most important rent comp factors, I'd say they are:

  1. Location of Property
  2. Type of Property
  3. Bed and Baths
  4. Size of Property
  5. Condition

Finding Comparable Rent Comps

  • Previously rented comps versus currently “for rent” comps
    • Reality versus Fantasy Land
      • What are you actively competing against?
      • Harder to push rent when there are 10 other identical properties to choose from
    • Rented as close to current date as possible
    • Want to look at both
    • Want to see about half a dozen
  • Same number of beds and baths (ideally)

Where To Look For Rent Comps

  • Sites like Zillow and CraigsList
    • You could check these sites EVERY day, print out ones that would be good comps to properties you own (or may own in the future) and keep them organized, or…
  • Aggregation services like Rentometer and MyRentCoach
  • Pay to order reports from services like RentRange
  • Property managers
  • In my project management software, I try to remember to write down what clients tell me they got for rent and when

Proximity

  • As close to subject property as possible
  • Same neighborhood or subdivision
    • Nearby comparable neighborhood or subdivision – if similar
  • Radius around property
  • By same zip code – BE CAREFUL
  • By same city – BE CAREFUL

Property Type or Style

  • Single family home, condo, townhome, small multi-family (duplex, triplex, fourplex), apartment/commercial
  • Stick built, manufactured home
  • Ranch, raised ranch
  • Bi-level or tri-level
  • Brick, siding

Square Footage

  • Square footage +/- 10% to 20%
  • Or, determine a rent per square foot of your best comparable rentals
    • Remove high and low, especially if they’re outliers
    • Use average to determine value of your subject property based on the average
  • Some websites can also provide average rent per square foot to do quick estimates

Age of Property

  • Recently built properties
    • Few years on either side
    • Property built in 2008 – may use 2005 to 2011
  • Couple decades old
    • Use about a decade
    • Property built in 1990 – may use 1985-1995
  • Many decades old
    • Use a decade or two newer as an upper range and include all properties older
    • Property built in 1942 – may use 1960 or older

Narrow The Net

If you have too few, expand the net. If you have too many comps, narrow the net to get a reasonable number.

  • Beds/Baths
  • Garages
  • Square feet
  • Proximity
  • Age
  • Type, style, amenities
  • Recency “for rent”

Your Current Competition: Actively For Rent

  • What’s for rent right now?
  • If someone is looking for a rental, what else could they choose besides your property?
  • Buyer’s Eyes
  • Same or very similar criteria for what’s been rented
  • CraigsList and Zillow are likely some of your better sources for finding these

Asking Rent Versus What It Rented For

  • Be careful: asking rent is not what it necessarily rented for
    • Could be slightly higher with pet rents and other increases
    • Could be slightly less if there is a lot of supply and lower demand
    • Or, a landlord with a big heart
  • What is the trend?
    • Are you coming out of the off-season into peak season?
    • Are you heading out of peak season into off-season?
    • Some aggregator websites give you this data over a period of time

Warning: Lack Of Comparable Rents

If you are not finding properties that are similar that have rented or been marketed for rent… be very, very careful.

Consider being more conservative when analyzing properties.

Value of Upgrades

  • If a seller pays $10,000 to put a new roof on the property, is the house going to rent for more? Probably not. May be worth a little more… but likely won’t rent for any more.
  • How about new windows?
  • As a renter, given the choice between two properties that are otherwise identical, would you pay more for one that has new windows? Maybe if utilities are going to be lower, but how much more are you willing to pay for that? Not much in most cases.
  • Minimum requirements and expectations for a house. Already included in the expected rent value from comparable rentals

Market Based Rent Adjustments

  • Be careful to make sure the adjustments you make are founded in market data or give yourself time to adjust rent down
  • A swimming pool might only add a very small additional rental value to a property if there is no market data to support additional value for pools
    • You might find someone who does assign it extra market value
    • But if you don’t, give yourself time to adjust the rent down to get it rented

Rent Comp Examples

At this point in the class I walk folks through a property I own and what each of the major sources of rent comps have to say about rent. We cover:

  • Zillow (and Roofstock which seems to use Zillow data)
  • MyRentCoach
  • Rentometer
  • RentRange
  • My Property Manager’s Renewal Rent

I show a sample screen shot or report for each and we discuss how to interpret the data in detail.

My Property Manager's Process

I sent an email asking my property manager what she does for rent comps and if she'd like it if I suggested clients in Northern Colorado contact her for rent comps. Here is her reply and contact info.

We start off by looking at our own properties, what we are getting for them and any problems we have had renting them (neighborhood/style/unit type).

I then use the Zillow automated rent estimator as well as a manual search on Zillow.

Followed by a general search online apartments.com, Market Place, Hotpads etc.

Lastly a search of our competitor’s sites.

I’m happy to help anyone out with rent comps, I will always put our current owners above others but anyone can email me with a request for a rent comp.

Ask them to be upfront though if they plan to manage themselves, then I can prioritize them accordingly, or give a ballpark number if I am busy.

Let them know an email is easier than a phone call because I do need to research and I’m always checking emails.

Gillian Bliss – General Manager/Broker Associate
Evergreen Property Management, Inc.
Phone: 970-226-5600
Email: [email protected]

Rent Comps For New Construction

For some new construction neighborhoods, it can be incredibly difficult to find appropriate rent comps. Might need to:

  • Go outside the immediate geographic area AND/OR
  • Use less similar properties

Using Purchase Payment To Set Rent

Should you use the monthly payment from your financing (or even their financing) to set a rent price?

For tenants, this is likely not a reasonable way to set rent.

HOWEVER, for tenant-buyers (who will be buying the property), I think you can use this as another data point for determining what you should be able to collect monthly for a property. If the payment, when they buy it is going to be $X and they can’t afford $X, then… by definition… they can’t afford the property.

Will you always be able to get this number? No.

But, it might help you get the higher end of the rent range if this number pulls it up.

Tips When Analyzing Properties

If you're using The World's Greatest Real Estate Deal Analysis Spreadsheet™ to analyze your properties, then Brendon's section for rent and price sensitivity will be especially helpful.

  • Enter in your best guess about what it may rent for
  • Consider using the rent range to help you test your rent sensitivity in rent sensitivity table

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