Market rent question

[Dave Wyman]

When someone says units are being rented under market rent does that mean below the average rent or below the range from low to high.   When using the rent analyzer, it provides comps that have a low and a high range.   

For someone who is looking to find properties below market rent and increase rents to force appreciation, what set of rent comps should I be looking at - low, high,  average?   What other factors should I take into consideration for under market trends, if any? 

[Greg Scott]

Market rents are the highest rent you can expect to achieve with any given property at that moment in time. 

That last part is important, "any given property....".  If you have a 1950s build apartment and the apartment across the street is brand new, the rents from across the street are not your market rents.  However if the property across the street is identical in every way and they have higher rents, that should be your market rent.

If, in your 1950s building all the units are old and tired and you take one and make it beautiful, and it rents for twice the old and tired units, you can now see the potential from rehabbing units.  Most of us would say the ugly units do NOT have the higher market rents, but if you rehab another one, that unit would have the new higher market rent.

Market rents are also important for knowing the operational potential of a property.  A lazy landlord may not have been keeping up with the market.  If all their units are similar but have a range of $500/mo to $900/mo for rent, market rents are $900.  What that means is the person paying $500 has a $400 Loss to Lease.  If you calculate that a property has a high Loss to Lease number, it usually means there is an opportunity to improve income without spending a huge amount on rehab.