For investors, higher market rents often equal higher rental income and returns. That is why identifying profitable rental markets is essential to investment success. The ability to sufficiently assess different markets and determine average rent prices before investing minimizes risk and saves investors from money pitfalls.
Market Rent definition: The cost of rent tenants and landlords can expect for a property based on comparisons with similar properties in the area.
Similar to ARV comps in home flipping, experienced long-term investors leverage market tools and data to compare rental markets and properties. In doing so, investors gain insights into market rents and prospective rental potential before spending a dime.
Below, we’ll explain how to estimate market rent before investing using various online tools and resources. Then, we’ll share strategies for investors to increase market rent and achieve high returns.
Below, we’ll explain how to estimate market rent before investing using various online tools and resources. Then, we’ll share strategies for investors to increase market rent and achieve high returns.
Tools & Resources to Determine Fair Market Rent
To find fair market rent prices by zip code or area, investors can utilize multiple secondary resources to find the data and insights needed. Let’s look at some of the top fair market rent tools and resources available online:
Fair Market Rent Calculators
Today, many real estate marketplaces have simplified market rent estimations by providing fair market rent calculators. These calculators use millions of data points and local market trends to determine the most accurate estimates and fair market values for rental properties.
Some of the top FREE online market rent calculators include:
Remember, these online market rental calculator tools only provide estimates. No numbers are set in stone, and the actual rent cost for a property can vary significantly based on various factors (amenities, features, location, etc.).
Some of the top FREE online market rent calculators include:
Remember, these online market rental calculator tools only provide estimates. No numbers are set in stone, and the actual rent cost for a property can vary significantly based on various factors (amenities, features, location, etc.).
Local MLS & Real Estate Marketplaces
If you have access to an MLS database (or a dream team of essential real estate partners with access), it’s best to scout the competition to gain a better sense of market rent. Otherwise, you can use popular real estate and social media marketplaces like Zillow, RedFin, and Facebook.
By leveraging these platforms, you can gain insights into:
By leveraging these platforms, you can gain insights into:
- Current average rent prices in neighborhoods.
- Price differences between units based on unit size, property types, amenities, and features.
- Seasonal rent fluctuations.
Public Data & Government Resources
While MLS databases and certain rental marketplaces may charge a nominal fee to access data, there are several free public resources smaller-budget investors can use, including:
- U.S. Department of Housing and Urban Development’s (HUD) Fair Market Rent Report: Provides annual rental price estimates for metropolitan areas.
- Local Housing Authorities: Local housing agencies often publish quarterly reports with rental market trends on their websites.
- Census Bureau Rental Tables: Gives insights into rental trends and average prices based on geography and property characteristics.
Steps to Estimating Market Rent
1. Find Comparable Rentals (Comps): Using the MLS database or real estate market platforms, find similar rental units recently rented in the area (within the last 3-6 months).
A suitable comp should:
A suitable comp should:
- Have the same number of bedrooms and bathrooms
- Be around the same square footage
- Have a similar property type (single-family home, townhouse, apartment unit)
- Be nearby (ideally, within 1-3 miles)
- Have similar amenities and features (pool, garage, backyard, etc.)
2. Adjust for Differences: Chances are, you aren’t going to find a perfect comp. In which case, you must adjust your market rent estimate based on the difference. So, if a comp has more square footage, deduct the difference from your market rent estimate.
The most common features that add or decrease fair market rent in a property include:
The most common features that add or decrease fair market rent in a property include:
- Square footage
- Garage or off-street parking
- Smart home features
- New appliances
- Kitchen, bathroom, or floor upgrades
3. Study Rental Demand: All the comp research and estimates in the world can’t protect you from a bad rental market. Aside from studying rental properties, investors must familiarize themselves with local market conditions and rental demands. Before investing, consider a market’s:
- Vacancy rates: High vacancy rates in a rental market can be a red flag for investors because it can:
- Indicate an oversaturated market
- Leave investors vulnerable to lost income streams
- Require more resources for finding and securing tenants
- Turnover Trends: If there are high tenant turnovers in a market, it’s best to look into the local economy, education system, and job market.
- Seasonal Rent Fluctuations: Typically, consumers relocate during warmer months (Spring, Summer), which can increase rental demand and market rents. Research seasonal fluctuations to understand the average market rent prices throughout the year.
Increasing Market Rent & Profits
If you’re looking to increase your property’s market rent without expanding the size of the property, there are several strategies you can use to boost your rental’s ROI, including:
Flexible Lease Terms
Agile lease terms can attract a broader tenant pool that is willing to pay more for rental flexibility. Many investors will include pet-friendly policies or shorter lease terms to increase appeal and market rent.
Property Upgrades
Not all property upgrades are created equal, with certain features and appliances boosting rent prices more than others. Some of the top upgrades for increasing market rent include:
- Adding a washer/dryer unit to the property
- The addition of Smart home features like keyless entry, smart thermostats, and security systems
- The installation of hardwood or vinyl plank flooring over carpet
- Kitchen and bathroom renovations
While some high-ROI property upgrades increase upfront costs, they will eventually pay for themselves and then some through the increased rent costs they create.
Accurately estimating market rent is essential to long-term investment success. By leveraging online tools and resources to compare and estimate local properties, along with rent costs, and research market demands, investors can identify highly profitable rental investment opportunities.
To take advantage of the right rental investment opportunity and boost market rent, investors need reliable and adequate financing. Finance of America Commercial (FACo) has been helping real estate investors secure investments and find financial success for the last 11 years. Our Single Rental Loan and Rental Portfolio options, along with our team of industry experts, provide long-term investors with the structure, knowledge, and capital needed to be successful in today’s markets.
If you’re looking to optimize your real estate rental property and increase your market rent value, let FACo help. CLICK HERE to schedule a FREE consultation today.
Accurately estimating market rent is essential to long-term investment success. By leveraging online tools and resources to compare and estimate local properties, along with rent costs, and research market demands, investors can identify highly profitable rental investment opportunities.
To take advantage of the right rental investment opportunity and boost market rent, investors need reliable and adequate financing. Finance of America Commercial (FACo) has been helping real estate investors secure investments and find financial success for the last 11 years. Our Single Rental Loan and Rental Portfolio options, along with our team of industry experts, provide long-term investors with the structure, knowledge, and capital needed to be successful in today’s markets.
If you’re looking to optimize your real estate rental property and increase your market rent value, let FACo help. CLICK HERE to schedule a FREE consultation today.
