Fair Market Rent

[Aaron Nelson]

Hello fellow BP investors,

I'm a newbie looking to get started in RE investing. I'm interested in buying and holding SFRs and/or multifamily properties in Western Washington. 

I've done some research on average monthly rent values on websites like Zillow, huduser.gov, Craigslist and rent.com but realize there are limitations to these websites and am interested in learning from some experienced investors. I know rent prices can vary widely within a city depending upon type of property (3br/2ba SFR vs multifamily home), neighborhood, quality and square footage.

With this in mind, would anyone mind sharing how they determine fair market rent for an SFRs or multifamily properties in a particular area (eg, "Northern Tacoma" or "Bayside/Riverside in Everett")? I suspect this is more of an art than a science and would love to hear some different ideas. 

Often when I search Craigslist to verify rent prices, I'll see five different sized houses in Auburn (for example) located in 4 different neighborhoods, each of a different quality and priced anywhere between $1600-$2200...so when I am (trying) to evaluate a property, for NOI, COC ROI, etc., I get an extremely wide range based on which number I use. I also wonder if these asking prices are "reasonable" or if the reason I am seeing them still listed on Craigslist is because they are too high and can't find a tenant.

Thanks for your feedback!

[Curtis Bidwell]

@Aaron Nelson It is both a science and a discipline.  My complex of 24 2 bed, 1 bath units used to be larger complex but the owner split it into 3 smaller complexes and sold them off; a 16 unit, 24 unit, 32 units.  All units are identical in layout.  But each complex has its own level of finishes, counters, floors, appliances.  I keep mine mid-grade and just rented 3 units at $925.  My neighbor with the 32 units puts higher end finishes with newer cabinets, stainless appliances.  She just rented at $895.  The neighbor with 16 units keeps there's at a lower end and rents for just $795-825. 

Remember, we all have the same sq ft and the same floor plan!  I get more because I respond to each and every call/email asap! When I have available units I try to answer and not let the call go to voicemail. I schedule showings as soon as possible for myself and the client -that day if possible!  I show up ready with applications and contracts.  

I keep a pulse on the market through rentometer, craigslist, etc.. along with my RE broker.  I tend to push the market and adjust when necessary.  Also, you'll find that certain times of the month get a better response than others.  I get the majority of my calls between the 1st and 10th when people are preparing to move the end of the month.  So my pricing reflects that.  Times of year will also cause your rent to vary. 

Rents are incredibly dynamic, in fact larger complexes use a dynamic rent program that works similar to buying an airline ticket.  If you rent on Tuesday you'll get a better price than Saturday, or if there are 5 available units vs. 1 available unit, 6 month lease vs 12 month, etc..

Good luck with your research!  Both Tacoma and Everett are good areas with strong rental pool.  You'll do fine if you do your due-diligence!