How do you estimate rental rates in a market?

[Jason Deck]

NOTE:  I posted this earlier with a title "My First Deal", and when I didn't get any replies, I assumed it is because there are too many "first deal" posts on here.  So, I am reframing to get at my actual question.  :) 

Hello,

I am a new member, and new investor. I am seeking to invest funds I made when we sold our company recently. 

My sister lives in a medium sized town where I grew up. She is in a condo complex where she rents a 4br/3ba condo for $1k/mo. My stepfather lives in the same complex and rents a 3/2 for $900/mo. Both of them feel they have below market rental deals. My stepfather signed a long term lease 3 yrs ago, and my sister's unit is not very nice.

I went to visit this weekend, and there is a nice little 2/2 for sale, with distressed sellers, for $60k. I spoke to the realtor and could probably get it for $50k. The place is about 1000 sq ft, and has been nicely freshened up and seems to be in very nice condition.

So far, so good. But, then I see a nearly identical unit in the complex for rent for $650. Hm. Red flag.

I find it hard to understand how a 2/2 for 50 grand would not produce a solid CoC return if my family members are paying far higher rents in the same complex.

Here's the question: What rent should I trust? The listing I see on craigslist, or the reality of my sister and my stepfathers actual leases? Oh, and Rentometer says the median rent for a 2br within 1 mile is $776. So, again, what should I believe?

Thanks in advance everyone.

[Account Closed]

Hi @Jason Deck

Welcome to BP! To determine comps, it is good to get info from as many sources as possible

If you know a licensed agent with access to MLS (Multiple Listing Service), ask them to run a quick report showing the rental activity, within a 1-mile radius of your rental, for the last 6 months.

If you don’t know an agent, you can also call one who has active listings in the neighborhood, just look for signs. It takes them less than 10 minutes to create a search. You can send a nice Thank You card with a Starbucks card to show your appreciation.

You also need to do your own search on free listing sites. Rentometer, Craigslist, Zillow, Realtor.com, are all good resources to research your competition.

Based on your sister, stepfather, MLS and online listings, you should be able to come up with an average price range for the neighborhood.

Be sure to attention to the DOM (Days on Market) or age of the listing as well. Did a listing with a higher rate take longer to rent? Did the lower rates rent immediately?