Finding the right rent price for your property is one of the most crucial factors to success as a landlord and real estate investor. With a price too high, your property may sit vacant. With a price too low, you may be losing out on hundreds per month.
A savvy landlord uses rental comps to maximize their rent income by finding the perfect price for the current rental market.
If you’re new to real estate investing or a landlord who wants to make data-driven decisions, you’re in the right place.
We’re diving into exactly how to use rental comps to maximize rent income while also increasing property value so you get the most out of your investment.
What are Rental Comps?
Rental comps are similar, or comparative, rental properties to yours.
These properties are similar in size, number of bedrooms and bathrooms, amenities, condition, and location as yours.
Evaluating the price of these rental properties provides insight into the state of the rental market and the amount you can rent your own property.
Rental comps are very similar to comparative market analysis (CMA) when purchasing a property, either residential or investment. They serve the same purpose, but instead of deciphering property value, they determine rental value.
How to Accurately Use Rental Comps
Now that you understand what rental comps are, it’s important to understand how to accurately use them to find the right rental price for your rental.
When searching for rental comps, it’s important to look for similar features and amenities as your rental property. These include:
- Square Footage
- Bedrooms
- Bathrooms
- Condition
- Property Type (Single-Family, Apartment, etc.)
- Amenities
- Appliances
- Location
- Parking Availability
- Storage Space
It can be difficult to find identical rental properties to yours in the same area.
In this case, you would adjust the rent price according to what the rental comps do or do not have in comparison to your property.
Let’s look at this example.
Your Rental Property for $2,700 per month
- 3 bedrooms
- 2 bathrooms
- Unfinished basement
- Private parking
Rental Comp for $3,300 per month
- 4 bedrooms
- 2 bathrooms
- Unfinished basement
- Street parking
While the rental comp has one more bedroom, your rental property has private parking, which can be extremely important to tenants. By this comparison, you have some liberty to increase your rent price by a couple hundred dollars per month.
Of course, it’s important to review at minimum three or four rental comps to fully understand the market and how you should price your rent.
How to Use Rental Comps to Maximize Rent Income
When analyzing rental comps, it’s the perfect opportunity to take this information and maximize your rent income so you get the most out of your real estate investment.
Calculate Fair Market Rent
One of the hardest parts of owning a rental property is setting the right rent price for the location and current market.
Many landlords use the 1% rule. This is when they set the initial rent price to equal a percent of the property’s value. For example, a $250,000 property should rent for $2,500.
This is a great starting point. But once you have some rental comps available, you can adjust this price to match what else is on the market and find a sweet spot for your rent.
Consider Increasing Property Value
While gathering rental comps, if you notice that many of the rental properties on the market are in better condition or offer amenities that you’re missing, it could be a sign to add these features to your property.
Not only will it increase property value, but you can increase your rent price after adding these amenities.
Estimate Cash Flow
When in the market for an investment property, it’s a good idea to gather a list of rental comps in the area where you’re looking. This will give you an idea of the competition and how to price your rental.
It can also be an informative tool for how much you can expect to earn if you purchase a particular rental property.
Predict Tenant Demand
If you set your rent price too high, you could be left with a vacant rental. If you set your rent price too low, you could be stuck with tenants who take advantage of the price and not renew their lease if you try to raise the rent.
One of the main benefits of rental comps is finding a sweet price that is favorable to tenants, keeps them interested in renting, and still earns you profit for your investment.
Where to Find Rental Comps
Rental comps are one of the best-kept secrets for setting a rent price that aligns with the current rental market, but where can you find them?
If working with a real estate professional, such as a property management company, you can find rental comps on the MLS. This exclusive and professional database has some of the most accurate property value and rent price information online.
For independent and do-it-yourself landlords or real estate investors, websites such as Zillow, Redfin, or Rentometer can help you find rental listings in your area and pull rental comps.
Make Data-Driven Decisions About Your Rental Property in Phoenix
When it comes to maximizing your rent income and the return on your investment, the best thing you can do is work with a trusted local property management company like Stratton Vantage.
As the area’s leading property management company, our team of real estate experts can build a comprehensive analysis of rental comps and find the best rent price for your property.
With professional guidance, you can make data-driven decisions to maximize your ROI, increase tenant retention, and boost property value over time.
Plus, with our day-to-day management, such as maintenance and repair coordination and financial reports, your job of being a landlord becomes 100% easier.
Request a free rental analysis from Stratton Vantage to start maximizing your rent income today!