Feedback for gauging rental demand and looking at rental comps

[Priscilla Chin]

Hi everyone, 

I'm looking to buy my first long term investment property and am not sure whether I'm approaching my research for rental comps correctly. Please give me feedback!

First, I type in the zipcode to look up the rental statistics on zillow. Example with zipcode 11203:  https://www.zillow.com/rental-manager/market-trends/11203/

Then if the market temperature on this page says warm or hot, I'll look up a house I might want to buy in that zipcode. Example: 3bed 2 baths. And I look up 3 bed 2 bath houses for rent in that same zipcode to see houses similar to the one I chose to get a gauge for how much I can rent it out for. 

Along that process, I will come across a few homes in that zipcode that have been on the market for a while...64 days, 96 days, etc. These houses seem to be in decent condition, clear photos, etc renting at a reasonable price compared to the newer listings. When I see this, it's concerning because.. why are so many decent looking homes in a "warm" market temperature on the market for two plus months??? And that usually steers me away from that zipcode because I have to imagine that my house can possibly be vacant for months as well. 

Is that conclusion correct? Am I missing something? Are there other ways to gauge the rental demand??

[Nick Harrington]

Hey Priscilla - very exciting! Happy to chime in here. 

Whenever I am comping rentals, I always start with Rentometer. I have a pro membership which is I believe $5 / month and it is well worth it. 

This gives me a gut check in terms of what the rent range is for this property based on location, number of bedrooms, and number of bathrooms by showing the average rent, median rent, 25th percentile, and 75th percentile. From there, based on the condition of the property, I can then determine where on that range I should expect for rent. 

Next - I look to look at Zillow (which you mentioned) to see the active number of rentals on the market that this would be competing with. I wouldn't let 2 rentals that have been sitting for 30+ days deter you. If you are seeing  a large number in a small area that have been sitting, I would be more concerned. 

Next, I would like to uncover what has rent growth / decline looked like in that city / area overall. In general, are they going up or down YoY.

There is no true "science" to it and it is a bit of an art, but to answer your question, you are doing all the right things, and I would not let 2 rentals that have been on for a long time stop you.