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Determining Market Rent for Your Investment Property

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determining market rentThere are numerous resources available to real estate professionals and investors that can estimate the market value of a property. I use the Milwaukee Metro MLS daily to determine the bottom and high end for our current inventory of single-family and multi-family homes. I also use it to do comparative market analysis on properties we’re considering purchasing.

In addition, inside the MLS system I have access to the property tax information and their assessed value calculations. While these numbers aren’t very accurate, they do give me a place to start.

Unfortunately, for buy and hold investors and property managers no such database exists to determine market rent.

There are websites like Rentometer.com that offer highly generalized figures. However, their data is very limited. It’s unclear where they obtain their rental figures but it’s likely they’re aggregated from third party sites that advertise properties for rent (HotPads, Zillow, Trulia). However, Rentometer.com and other rental estimator sites have no way of knowing if landlords actually leased their properties for the advertised price, or if they were leased at all. Their projections could very well be pie in the sky.

I compared a few of the leased properties we have in our current inventory to Rentometer’s estimates. Here’s what I found:

Property Address: Current Rent: Rentometer Estimate: Difference %
2207 S. 61st Street $1,350 $999 $351 26%
2725 N. Bremen Street $1,325 $893 $432 33%
712 W. College Avenue $1,275 $1,108 $167 13%
2811 N. Bremen Street $995 $750 $245 25%

Had we gone with their projections we would have left thousands of dollars on the table. Rentometer’s estimates were off by 13-33%. Before we decided to start managing our own buildings one local property manager told me that the average home in Milwaukee rents for $94 a square foot. However, our inventory averages $110 a square foot.

How can that be?

There are several reasons our properties are commanding higher rents, the most important being they’re fully remodeled. However, I have a hunch that most investors are leaving money on the table by guesstimating too low.

There’s really only one way to determine market rent for your investment property and that’s to advertise it across multiple platforms (CraigsList.com, Postlets.com, yard signs, newspaper) and then wait. If your email inbox doesn’t fill up with inquiries then you know you’re priced too high. If you’re getting lots of showings but no application requests then you’re priced too high. If you have tenants fighting to fill out leases then you’re probably priced too low. This process may require a little patience, but it in the end will be more profitable, especially when you consider how long tenants are staying these days.

It’s a seller’s market for landlords in most major cities. Demand is high for quality rental properties. That means you can be aggressive. Trust your instincts and pay attention to inventory levels. It could add up to 33% more money in your pocket.