By Paul Branton, Director of Investor Services for Home Rental Services
Owners wondering what their house will rent for is an important question that comes up constantly. I’m certain that if we compiled a list of FAQs, this one would be in the top five. Scratch that, it would definitely be in the top three. Yep, top three for sure.
When I say it comes up constantly… I mean that there isn’t a day that passes by where I don’t price between one and twelve houses. I price homes for new client inquiries. I price homes for investors looking to buy. I price homes for renewals. I price homes going back up for rent. I price homes “as-is” or “improved”.
It’s a lot of fun but also a fair amount of work. I want to find the “sweet-spot” where we are not going to leave money on the table, but also not be too aggressive.
So how exactly do I determine rental rates?
These are the four things I’m looking at when pricing a property for rent. (In no specific order)
1) Zillow Estimate and Current Rental Comparison.
I pull up the property on Zillow and look at the home as compared to the surrounding homes available for rent. Zillow also provides their own “rental Zestimate” which has improved in recent years, but isn’t always accurate. It’s based more on price per square foot in comparison to current available rentals. That’s not the full picture.
2) Our Portfolio Comps: On Market and Recently Leased.
I’ve been working at HRS for nearly a decade, so I’m familiar with our portfolio. This allows me to look at a property and quickly know that we have a few that are similar. I can use those for comparison. I am also actively involved in the marketing process so I’m “in the know” on what is getting leased, how quickly and at what rate. This is really helpful insight.
3) Rental Analysis: Provides Recently Leased Comps.
When there are times that I want to double check my number, or times where we don’t have as many comps to pull from, I pull a rental analysis. In fact, just last week I pulled one for an investor looking to buy a property. The rental analysis report was helpful because we didn’t have any “portfolio comps” and the “Zillow comps” weren’t in similar condition.
4) Historical Rent.
Of course, this is only applicable for properties that have previously been rented. I find that it’s helpful to see the historical data for some context.
For example, if you know that the property leased for X in a strong year, and Y in a weaker year, then it should land around Z in the current market.
Once I’ve reviewed as much of this data as possible, I put the property in a $100 +/- range. i.e. $1,550-$1,650.
That’s it. That’s how to determine the rental rate for your property. It’s really fairly simple…. once you’ve done it a few hundred times. :)