All Forum Posts by: George Kalogeropoulos

Correction: The resource that Jean and Michael are referring to is

www.rentmetrics.com

Disclosure: I am affiliated with this company.

Check out this post:

https://www.biggerpockets.com/forums/88/topics/96339-how-to-estimate-rent-for-deal-analysis

And Bryan H's excellent guide, posted here:

http://www.biggerpockets.com/rei/fair-market-rent/

Serge,

The major issue that I see with cashing out is exactly what you've pointed out in your post - with investment yields as low as they are across asset classes (money market accounts, bonds, you name it) where will you park the money if you cash out? Real estate might still be the least-worst thing to be invested in right now.

There's also the very real possibility of higher inflation - the Federal Reserve is actively targeting higher inflation so as to make the huge amount of both government debt and household debt out there more manageable. This is a good thing for the economy, but it hurts savers, and particularly those who are holding so-called nominal assets like cash.

George

Hi Samantha,

This is George, founder of RentMetrics. I wanted to take a moment to answer your questions directly. This is not meant to be an advertisement, but to clear up any confusion that folks may have and to add to the conversation around these services.

Where does the data on RentMetrics.com come from?

Our data comes from listing partners, public records, and to a lesser extent phone surveys.

How reliable is the data?

Our entire business is built around doing the best possible job of finding all the rental data that is out there, collecting it in one place, and cleaning it up to get rid of duplication, fraud, and stale information. Our team of programmers have spent over a year building the algorithms that power RentMetrics, and we have folks on staff whose full-time job it is to find and fix problems with the data.

Why use RentMetrics vs other sites?

The key features that differentiate our service are:

1) Detailed features/amenity information & pictures of comps (this gets at David's point about area / condition of property).

2) The ability to customize how far out to look for comps, and to exclude bad comps.

3) The ability to export reports.

If anyone has any further questions about RentMetrics, please feel free to reach out directly to me at [email protected] or by phone at (888) 735-1464.

Thanks,

George

Steve,

Some suggestions

1) Check your pricing relative to rental comps on RentMetrics to see if you are overpricing (disclosure: I am affiliated with this company)

2) Check vacancy rates in your area on the Census Bureau's site to see how hot/cold the local market is.

3) Consider what other options tenants have (e.g. professionally managed garden style communities).

4) Consider whether money or overhead is more important to you (e.g. can you make things more attractive by offering to handle lawn care, or would you rather just drop the price?)

Hope that helps,

George

Rob,

A couple other factors to keep in mind:

1) What are your cashflow needs? Are you looking to buy another investment property? Do you have any significant personal expenses in the pipeline (new car, sending a kid to college)?

2) If you rent, are you going to manage the property yourself or hire a property management firm? Either way, you need to factor ongoing maintenance expenses into your calculation - it's not going to be as cut and dry as $500/month in profit ($2000 rent - $1500 payment).

3) Make sure to do proper tenant screening - credit history, references, etc. - even if you know the renters. It's fairly cheap and the cost is nothing compared to your financial exposure once they've moved in.

George

Thanks Mehran!

Thanks Jean! Any suggestions or feedback are very welcome.

Nicolaas- Agreed. It helps that the market is so hot around here, and a nice side effect is that tenant quality tends to go up as well (fewer trashed units / skipped rents).

Another factor I forgot to mention is that the big institutional players can get a lot more leverage, meaning that they can squeeze more return out of low cap rates.

So where you or I might want to see yields of 7.5% (say 4.75% borrowing cost + 2.75% excess return / profit), these guys will go in at 4.5% yield (3% borrowing costs + 1.5% return) on individual properties and just try to do more deals for that 1.5% return. This is a riskier strategy (e.g. when the market turns), but these guys aren't betting their own money...

Daren,

Coming up with rent estimates for 'pro-forma' (deal) analysis is both a science and an art. It's a science because plenty of useful data is out there, but it's also an art in that there is a lot of judgment and experience that comes into play. This is true for even the largest, most sophisticated institutional investors.

DATA SOURCES
In addition to those listed on the excellent article that Bryan H. linked to above, there are:

Axiometrics / REIS / Pierce-Eislen: These folks conduct phone surveys on a monthly basis and publish reports and analysis. They are geared towards an institutional audience (e.g. private equity), and focus on large multifamily.

RentMetrics.com: Free rent comps, with features and amenities. Full disclosure: this is my company, so I won't say any more to avoid breaking the 'self-promotion' rule.

MLS: This is mentioned in the article, but depending on where you are located, your local MLS may or may not have good quality rent comps available. When they are listed, they tend to be nicer properties, since an agent is typically involved in the transaction.

SUBJECTIVE FACTORS
There are a number of subjective factors to take into account when comparing your property to a rent comp. They include:

Time: When was the comp rented? The rental market is highly cyclical / seasonal, and a comp from November is not the same as one from May.

Size: As the size of a unit goes up, the rent per square foot typically goes down. Micro-apartments in San Francisco will go for up to $7 / sq ft (!), while a 'normal-sized' 1-br down the street of similar quality will go for $3.50 - $4.50 per square foot. Take this effect into account - don't just multiply the rent per square foot for comps times your unit's size, particularly if those comps are a very different size from your unit.

Location (location, location...): This one is obvious, but did you know that being at an intersection lowers rental value? (We've statistically proven this to be true). Walkscore can be an interesting metric to look at here as well.

Features/Amenities/Age: Also obvious, but tricky to fully take into account because different renters value features/characteristics and amenities differently.

Section 8 (and BMR, and rent control): Section 8 is a completely different market - I would not comp against these units unless your property falls into one of these categories.

I hope that helps, and feel free to let me know if you have any questions.

George