Being able to accurately and effectively assess your local rental property market is an invaluable skill for prospective landlords. Doing so is especially helpful when determining rent rates, since your rate needs to be competitive but also proportionate to the value your property is offering. When asking yourself, “is buying rental property worth it?”, you will find the answer when you determine whether the rate you want to charge is realistic to the rate others in your area are charging for similar units.
To figure out what to charge or whether to purchase a rental property in the first place, you will need to analyze the local market. But how do you do that? Below are a few ways to get started.
Make a Market Spreadsheet
The best way to start analyzing your local rental market is to start looking at properties like your own and figure out what the average price is among them. Create a checklist for buying rental property that includes key features and amenities. Some items you should include are:
- Rent rate
- Type of property
- Street address
- Square footage
- Number of bedrooms and bathrooms
- Amenities (additional facilities, utilities included, etc.)
- Other relevant features
When you create an organized spreadsheet, it’s easier to see at a glance what the market is offering and how much those properties are being rented for. You can cross-reference your ideal rent rate with what others are charging to see where you stand.
Explore Listing Sites
Exploring sites like Zillow, Trulia, or Apartments.com is a great way to add more data to your rental property market spreadsheet. The most important features to pay attention to are square footage and the amenities and utilities each property offers, since these are the things that add value and increase rent prices the most.
You can also explore properties that are similar to yours in other cities if you have trouble finding a close match to your space locally. However, be careful: rent prices are drastically different across the nation. Make sure you do your research beforehand to see if comparing your unit against the unit in another city would give you accurate information. Do other rental prices in the city compare to your own? Are landlords charging similar rates for the same type of property? If so, feel free to compare your unit against those similar in that comparable city.
Ask a Realtor
It is a realtor’s job to know about properties and your local housing market. They know more about real estate than anyone else because they have to in order to be successful, so they are an invaluable resource when figuring out what the market is like in your city. When it comes to what to know when buying rental property, they most definitely can help you out.
Realtors often have unique perspectives on the market, since they are in close contact with buyers and know the trends of the industry. Maybe buy your realtor friend a coffee and pick their brain on what they think the most valuable aspect of your rental is and whether what you’d like to charge is realistic.
Once you’ve gotten a good grasp on the market and have decided what you’d like to charge based on the information above, you need to consider the best return on investment, or ROI.
ROI for rental property is calculated by dividing the annual return by the total investment. Any ROI above 10% is considered solid, since a higher ROI means you have good cash flow or are making a profit after all your expenses have been paid.
When calculating ROI, feel free to use online ROI calculators, since some rental situations could involve interest rates, inflation, and complicated mortgages.
While ROI is certainly important, you should also consider a few other things before settling on your final choice. Consider how much down payment you can afford and think about what kinds of risks your investment will require you to take on. Are there hidden structural problems in your property? Are you willing to face an unpredictable housing market? What if you have difficult tenants, or face high vacancy rates?
Going through these tips should help you better consider whether investing in real estate is a feasible option for you in your current market. Doing the proper research saves you the headache of getting yourself into an investment you’re not ready for.