Determining Rent For Your Market

As landlords, we all come to the point where we need to figure out what is the best rent to charge for a vacant apartment. As a broker, I've dealt with home owners who have one or two units and they have this idea that they don't want to charge too much and have people who can't afford it fail on payments. As an investor, my concern is cash flow and I am looking for highest and best rent that the market allows. If you screen your tenants properly, you will get what the market calls for.

So first and foremast, you need to determine what your market is getting in rents. Where do we start? I'm a broker and I usually start with MLS. It's very accurate and it's the first tool I turn to. Obviously, not everybody is a broker but we all have access to realtors in our area. You can call them as a landlord and ask what the area rents are or you can call them as a potential tenant, in case you don't want to be pressured into listing with an agent. Different areas have different rules. I have some properties where I pay the realtor and I have other properties in areas where the potential tenant pays the fee.

So where do we start? First we have to remember to compare apples to apples. You have to compare a 3 bedroom 2 bath with parking with a 3 bedroom 2 bath with parking. When you deviate because of lack of comps, you need to make adjustment,s the way an appraiser does, that would determine the value of a property.

So where do we look? It's always best to look within a mile of the subject property. Areas change very quickly when you get further away from the subject property, so it's good to stay in close proximity. That also depends on the market. If your in a strong market where supply and demand is on the demand side, you can tighten your radius and stay closer to the property. In a market where you have a lot of supply and not a lot of current comps, you sometimes have to open the radius to get the comps you need.

How old should the comps be? Ideally the average comp you want to use is about a year. Markets can change very quickly or very slowly. Again, like distance, it all depends on the market. When you open the radius, you may also want to look further back in time. The same goes for a good market when you’re tightening the radius, you can look within 6 mos. The best comps are current and close.

You can use MLS, which I feel is the most accurate, or you can reach out to some of these big name websites and get an idea. With the big websites, there is not a lot of regulation and the public can manipulate the information on there. An entity like MLS is regulated and issue their members fines for inaccurate information and bad business practices.

Ok, so now you have an idea of what to list your property for and you put it on the market. I generally list it on MLS and I use Cozy.co for a number of things, starting with listing, screening and collecting rents. You can check them out, they offer free screening to landlords and a free management software. The only downfall I find is they collect on the first and it takes a couple days to hit your account. Excellent working site, but the couple of days waiting may not work for everyone.

Always use prices of RENTED apartments not listings. Basically what their asking for may be unrealistic and using those numbers can hurt your bottom line due to a stagnant listing.

So you list your apartment for rent and try to get the highest and best rent. You start getting calls and maybe you are getting not as many as you would like, what does that tell you? It probably means you’re too high. Maybe you can back out something like parking or free laundry? Maybe offer the parking later as an additional charge or perhaps use coin operated machines. Leave the extras out, this may price you out of the market.

Maybe you are getting too many calls. Too many calls can mean that your price is too low. If you rent an apartment for $100 less per month, that's a $1200 loss. A listing that is too high or too low in price can make a difference in your bottomline at the end of the year. Don't be afraid to make these adjustments.

Let's recap. Research is key. Using professionals can help you make a decision on rent. There are many sites that can help in this decision making. Always use rented comps. Never use listings, it's a wish list. Make adjustments to your listing so you don't have a stale listing or lose money.

Use comps close and current.

Good Luck!