How confident do I need to be in market rents?

Question

Hi all. We're in escrow on a 4 unit that we plan to owner occupy. The units are below market rent and need work (of course!); however, I'm only ~80% confident in my post rehab rents because this property is located in a small pocket of other rentals. Most of the comparative rentals are outside this little pocket (only a half mile away or less, but that can make a huge difference). I've done my research on rentometer, Zillow, and Craigslist and I've calculated our financials with rents lower than my estimates. We're covering all our bases, but this is our first time rehabbing and renting so I'm sure there's more I don't know I should be doing. Thanks in advance for your thoughts!

Allen Clark · Answer

If I get > 5 people interested then I know I have priced it too low. My goal is usually 2-3.

Account Closed · Answer

Honestly, the only time I had to lower our rent in ads was during the crash. I would look at market rents and price ours a little under - because our units were really bare bones with no amenities. So, I didn't have the problem of pricing too high usually. What usually happened, is I might realize I'd priced it too low and would raise it by $100 if I was slammed with calls.I'd usually wait a week, if I didn't get the response I wanted.I don't think you have to worry about renters watching you change your price. There will always be new renters looking at the ads, who never saw your previous ads. If you price right, and your unit is in a desirable area, you should get it rented quickly. My experience was that I'd put an ad up, and have it rented within a week. Their move-in date might not be within a week, but I'd have a signed contract with their security deposit in the bank. I didn't require first month's rent until move-in day, but I did require the security deposit (one month's rent) along with a signed contract before I quit showing a unit.I don't know your particular market, but I have a couple friends from there or currently living in the area, and my understanding is that your market is hot. If you can't find a good applicant within a week, then you might want to change your price. That doesn't mean they can move in right away - they may have to give notice where they currently live. I expected it to take a month to do a turnover. Unless an applicant has already relocated to a local extended stay hotel for a new job they relocated for, then most applicants who you'd want will have to give notice. Sometimes you can convince them to pay overlapping rents for a couple weeks, but don't expect good tenants to be ready to move in tomorrow, is my point. If they can, that's a red flag - unless, like I say, they have already relocated for a job.Okay, I'm blabbing too much lol. Time to go to bed :-)

Account Closed · Answer

Well, if you use the rents that are currently being paid, there's your baseline. You know for sure you can get that much. I'd use those figures and consider anything you can get later on - gravy. The market just keeps changing. I managed a 26 unit building in Santa Clara. Whenever we got a vacancy, we'd check Craigslist and try out what we think we might be able to get in rents. If you get slammed with calls, you're priced too low. If you don't get any calls, you're priced too high. It's not cut and dried, is my point. There's no magic formula. But, you're lucky, in that the units are currently rented, and you know for sure you can get that much. Then, you look at the highest rents for the general area and similar units, and figure you should be able to get something in the middle. It's just not any more scientific than that, unfortunately.

Sarah D. · Answer

Sue K. thanks, you're saying what I know. I'm just nervous about the whole process. Question- if you price a unit too high how long do you edit to lower the advertised rent? And do you think potential renters seeing you lower the rent adversely affects your ability to get good renters?

Lance Hulsey · Answer

You bet and good luck.

Sarah D. · Answer

Thanks @Lance Hulsey I'll check out hot pads. I don't know of any restrictions and we're in an area where we could turn one unit into an AirB&B so that's another option to increase returns.

Lance Hulsey · Answer

One other site I like to use to discover local rental prices is Hotpads. Also, in your investigations did you check for any rental restrictions, limitations or local regulations? Just another thing to add to your due diligence in case you missed it.