Market Rent Analysis is a tool used by rental property owners to competitively price rent for their condo, townhome or house. In some neighborhoods, demand for all types of rental property fluctuates along with the general housing market, making it necessary to constantly monitor market influences and rent amounts charged by the competition. Whether you’re considering a rent increase for current tenants or offering a property for rent for the first time, how can you accurately set a rent amount that will be attractive to potential tenants while providing the highest possible return on your equity in the property? The solution is to conduct a Market Rent Analysis (MRA).
The purpose of an MRA is to compare your property against other rentals in your market in. Here are four easy steps to do a simple MRA.
1. Define Your Geographic Market. Your geographic market is usually an established neighborhood, supported by surrounding businesses, services and transportation. Draw boundary lines around your geographic market area on a map.
2. Define Your Demographic Market. Your demographic market consists of prospective tenants who will be attracted to the property’s location and have the income and credit history to qualify as tenants. For example, we might define your demographic market as people within a certain income range who are likely to ride public transportation. We would price our monthly rent within that income range and feature the close proximity of public transportation in our For Rent advertisements.
3. Research Your Competition. Gather information about other rentals in your area by looking at the same information sources that prospective renters might use, such as Craig’s List, printed apartment guides (usually found on racks in grocery stores), newspaper classifieds, and the dozens of local, regional and national web sites that feature rental properties. You can also ask tenants who live in competing properties about their rent and the general terms of their lease. Some will talk to you, some won’t, but it doesn’t hurt to try.
4. Analyze and Set A Rent Rate. Some owners or agents simply look at basic information about competing properties, gauge general market demand in the market where the rental is located (usually the prevailing vacancy rate), and “guess-ti-mate” a good rent rate. Others spend countless hours collecting detailed data and assigning numerical values to each of the property’s attributes to generate a weighted-average solution. Often, the outcome of each approach is nearly equal. The goal is to set a rent amount that keeps the occupancy rate and return on equity both up, and the proof of a good rent rate is a low vacancy rate.
Review the example of a simple market rent analysis below. You can add or delete parameters to fit your specific situation and organize the data in whatever way fits your approach to analysis. The important thing is to have the right facts to make the best rent rate decision possible.
I hope you found this information helpful. If you have any questions or would like help conducting your market rent analysis, please drop me a line at firstname.lastname@example.org.
Are you an active real estate investor always looking for great opportunities? Click on Contact Us and tell me what you’re looking for. I’ll make sure you receive immediate notification when properties that fit your criteria come on the market.
Need help with your existing rental units? We do annual/special property inspections, problem tenant investigations, past-due rent collections and eviction support. Click here >>> Property Management Services
John A. Souerbry & Associates (CA DRE 01370984) www.jsrealproperty.com
Tags: California property management, Market rent analysis, Northern California investment properties, Silicon Valley investment properties, Napa Valley investment properties