Tips for Realtors on How to Advise Clients on Their Property’s Potential Rental Rate
The short answer? You can get a very rough idea by doing a quick search on sites like Zillow or Rentometor. You can also get a quick answer by asking your preferred property manager to give you a quick estimate: Rental Rate Estimate
The long answer? It depends!
Depends on what?
Many things!
Coming up with a rental analysis is an art as much as it is a science! If you are the DIY type and want to learn how to provide your client with a rental analysis, there are many factors to consider, Including:
Market timing
At any given time, there may be more (or less) demand for rental properties depending on supply/demand, competition in the purchase/sales market, interest rates, etc. If your client is thinking about listing their home during a time when there is an abundant supply of rental properties to choose from, consider giving them a conservative estimate.
Property owner’s timeline
Does your client need to get their home rented yesterday? Or maybe they have about 30 days? Or maybe they are 60-90 days ahead of schedule? This will affect the rental rate they can charge. If they need to get their home rented quickly, give them a conservative estimate (even though that same property may rent for slightly more if they had more time).
Screening criteria / process
This is a big one! If Company A uses a very lax set of screening criteria and Company B uses more stringent screening criteria, and all else is equal, Company A may have an easier time finding a tenant at a given price point (Caution: just because someone is willing to sign a lease, doesn’t mean they are qualified). With that being said, consider the screening criteria that your client is comfortable with when giving them an estimate.
Amenities included
Does the property have an HOA? Are trash services included? Is there a community pool or playground? Does the property itself have certain unique and / or luxurious features that the current market competition does not? If so, you may be able to charge a slight premium on rent.
Pets allowed (or not)
Another big one! I estimate that about 50-75% of prospective renters are looking for pet friendly homes! If your client is firm on not allowing pets, their rental rate will be less than if they do allow pets!
Market competition
Active rental listings drive rental prices. Your client’s rental rate is largely determined by what the majority of comparable rental listings are charging. If active rental comparables range from $1800 - $2900 per month, but 8 out of 10 of them are price below $2200, you would be wise to advise your client that there is strong price competition on the lower end of that range and they should price their home accordingly if they do not want to experience a longer vacancy period.
Location
Is your client’s property in a rural area (this can help or hurt the rental rate)? Is it close to desirable amenities and shopping? Is it convenient to where target renters will be commuting to work? A strong location will have an impact on the rental rate.
Marketing
Marketing does play a role in determining the expected rental rate. Is your client planning on self-managing? They may or may not have the skills / knowledge needed to properly market the property. With a strong marketing process, and with a pulse on the market, you can command a higher rental rate.
Lease terms
Most leases are 12 months long. However, some tenants look for a shorter lease (3-6 months). Oftentimes, they are willing to pay a premium for that flexibility. If your client is open to shorter leases, they may be able to charge a higher rental rate. However, this may lead to increased turnover and vacancy.
Property size/type
There is a BIG difference between a 3 bedroom house with 2 baths and a 3 bedroom house with 1 bath. 4 bedroom homes generally command higher rents than 3 bedroom houses. A renovated / updated house can usually collect a slight rental premium. When providing a rental estimate, make sure you are looking at comparable properties that have very similar major features.
This is not an exhaustive list but it is a good place to start! Providing a rental analysis is similar (in some ways) to providing a CMA. However, there are many unique factors to consider when providing a rental analysis. You can use the free estimators online for a quick and dirty rough estimate - but take them with a grain of salt! A property manager that has a good pulse on the market will always be able to provide you with the most accurate estimate. However, don’t shy away from learning about the rental market! There is a lot to learn but you can set yourself apart from others and add another tool to your toolbelt by practicing!
Cheers!
John Williams
Rent My Home Property Management
931-272-3065
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