What's the best way to accurately predict rental rates?

[Matthew Espana]

Hi all, 

I am looking to get started investing in long term rental properties. However, when analyzing deals what seems to confuse me most is determining accurate rental rates. Zillow offers Zillow rents, but I don't know how accurate those predictions are? Furthermore, in the area I'm looking to invest in, most zip codes have both very nice and not so nice parts of them so looking into the zip code does not feel as secure either. Can anyone offer any tips or advice on they're most sure what a house will rent for? 

thank you!

[Chris Mason]

You've just got to run comps yourself as an intelligent human. Pretend you're looking to rent a place in that area. Hop on facebook marketplace, craigslist, zillow, the places you'd look if you were looking to rent in that area (if you don't live in the area in question but have friends that do, ask them where THEY look when they want to rent a new place). Always with the question in your head "if I could rent this place for that price, why would I rent THAT place for THAT price?" to guide you towards the "sweet spot" that is likely reality, since that question is EXACTLY what any reasonably intelligent renter is going to be asking. Work up a spreadsheet. If you want to charge $2000/mo, there had better not be a bunch of better places for $2000. And if everyone else is charging $2250 for a similar property, you're leaving money on the table at $2k/mo, and so on.

Zillow has information, but it's attempt to predict things with AI is famously a consistently bad showing, so don't rely on any of those estimates. 

[Michael Dumler]

@Matthew Espana, connecting with either a local investor or real estate agent is one of the surest ways to gauge accurate market rents. DO NOT use Zillow's rental estimates. You/your real estate agent need to pull lease comps to source reliable data. Hope this helps! 

[Sebastian Marroquin]

agree with responses on here: 

You have to become active in the area you want to buy in. Meaning that : 

you Reach out to Realtors renting places in that area. or property managers doing the same. Pay attention to what they are going for and how long they stay on the market? (2 weeks or 90 days) : you could jot down some places that look like the places you will buy and wait for them to get rented. 

How long did they stay on the market: say 22 days. great 

then call the people that were renting them: and ask them : "is the unit still for rent?" NO- it got rented out… Ok great. What did you rented for? the ask or lower? That will give you an idea of the market, tenant demand… 

You could also put a "mock" rental up on Craigslist or Zillow. 

Something similar to what you would buy. At 1700$ per month. The same one for $2100 per month etc 

If you get 10,20, 30 calls on the $2100 that week, that will tell you some info. Now, ask the people calling some general questions: 

When are you looking to move? 

How many people? 

How much do you make? 

What do you do? 

What's your Fico? 

Why are you moving? (very telling)

Have you ever been evicted ? 

This will tell you what type of tenant you can expect? (a property manager or realtor that is actively renting places could give you this info also). 

Tenant demand could be affected by the hyper location… or the condition of the unit or home? Your photos and description online also. 

The more research you do the more you will understand the area, the asset, the tenant and the process. 
(All this while Saving for your down payment, Closing costs and emergency funds… if not you will be doing research for 10 years and never buy anything). 

You could probably give yourself 1 to 2 months for research and finding good Lenders and Realtors : and 2 to 6 to 8 months to save for your first home purchase!! ) is that fast…. come on man…. you can do Lyft and Uber and save $25k in the next 6 months. No excuses :) 

[James Dainard]

Quote from @Matthew Espana:

Hi all, 

I am looking to get started investing in long term rental properties. However, when analyzing deals what seems to confuse me most is determining accurate rental rates. Zillow offers Zillow rents, but I don't know how accurate those predictions are? Furthermore, in the area I'm looking to invest in, most zip codes have both very nice and not so nice parts of them so looking into the zip code does not feel as secure either. Can anyone offer any tips or advice on they're most sure what a house will rent for? 

thank you!

 Hey Matthew,

You can use Rentometer.com, they've got great metrics to get you more accurate numbers. You can also try reaching out to local property managers to see if they have any units nearby to give you an estimate of what you might get for your units.

Use the above in combination with a blend of data from Zillow and/or Redfin and you should be pretty close!

Best of luck!