how to use rent comps appropriately
Getting rent comps is one of the most crucial and time-consuming parts of underwriting. The number one rule is to not believe the broker’s rent comp at face value. Remember, “trust but verify” everything. Remember, the broker’s main job is to sell you something. So, they will get you the highest rent comp to make the deal look better than it really is. A bad comp would be a comp from a property from the other side of town that is more expensive than a subject property that is bigger in size and has more amenities.
You need to find and verify your own comps. Here are some sites I use to find comps:
- APARTMENTS.COM
- HOTPADS.COM
- CRAIGSLIST
You need to consider these characteristics when finding a valid rental comp:
- AGE OF PROPERTY
- PROXIMITY OF COMP TO SUBJECT PROPERTY
- SIZE OF PROPERTY
- AMENITIES
A good rent comp is similar in age, size, amenities, and close in proximity between the subject and comps. For example, you don’t want to use a comp that is 200 units, built in 2016, with all the amenities that is on the other side of town to your subject 20 unit property that is built in 1980. So, you might be comparing a subject property that rents for $.99 per square foot and conclude that if you update the units, you can push rents to $1.25 per square foot like the comps.
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