How to Find Rental Rate Comps?
Much like pricing a home before itís listed for sale, running rental comps is a key component in appropriately pricing your rental investment property. Once your property has been secured, fixed up and is ready to list on the market, you will want to do your research to see what other property owners are asking for, and receiving, in rent on a monthly basis for dwellings that are similar to yours. By having this accurate information in hand, youíll give yourself the best chance to rent your property for the longest possible time, to the best possible tenant and for the highest possible price.
What is a Rental Comp?
A rental comp is a comparison of rental properties that are similar to yours in your specific location or larger region. The rental comp be based around other rental listings that have:
- A similar number of bedrooms as bathrooms
- Similar square footage
- Similar type of home (apartment, house, condo, etc.)
- Similar finishes and quality
- Similar location
- Similar amenities (pool, laundry, backyard, pets allowed, etc.)
By researching rental comps for your investment property, you will be able to see what other people are charging for properties that are like yours and, therefore, what you could appropriately as for in monthly rent.
How Many Properties Should Rental Comps Include?
Your rental comps should include as many properties as possible. The more data you have, the more accurate your comp will be, and the easier it will be for you to justify the rent you would like to charge.
You should aim to have at least five properties that could serve as good rental comps for your property. This isnít an exact science, though, as there is no guarantee you will be able to find five properties in your immediate area that could be considered the same as yours, based on some of the factors above.
It is OK to expand your rental comps to properties that have more or fewer bedrooms and bathrooms, as well as other features; youíll just want to take into account the differences as well as the similarities when building your overall comps.
Where Can I Search Comps for a Rental?
There are a number of websites that provide free rental comp searches for properties based on location and information about the property. Zillow provides an easy-to-use search function on their site (more on that in a bit).
Cozy is a good site to use to search for rental comps, but they charge for their reports. Rentometer is a site that operates in a similar way, but they only provide a few free searches before you have to pay for their site as well.
HomeUnion® provides an outstanding RENTestimate tool on our website, which gives you the ability to search a propertyís rental value in a market. This tool also provides a cost estimator and a price valuation for the home itself.
A more manual tool (but a reliable one) is to search properties to rent on Craigslist in your area. There are a lot of properties that are listed for rent on Craigstlist everyday. You can localize your search based on a large geographical region, or you can narrow your search there within a mile radius of a particular Zip code. Craigslist also allows you to filter searches by home type, features, amenities and price.
How to Find Rental Comps on Zillow?
Zillow provides a very visual and easy-to-use tool when searching for rental comps. Much like you would do if you were searching for homes for sale, you can use Zillow to search for properties that are currently for rent in your market. You can generalize your search for a city or drill down deeper by Zip code. You can also use other filters such as home type, price, bedrooms and bathrooms, etc.
Zillow has a number of really great features for rental comps. In addition to pictures of the actual homes for rent that display on the right-side of the screen, the site provides an interactive map on the left that allows you to move around and see exactly where each property is located.
When you click on a specific property, a separate window comes up that will show you all the details and description of the property, as well as a a breakdown of the rental price per square foot. Finally, the site offers a tool it calls Zestimate, which is an estimate of what the site thinks the property should rent for based on a number of market factors.
How to Look Up Rental Comps?
Rental comps should be built by using as many tools as possible. Zillow is an outstanding first resource to use when youíre generating rental comps, as it is very visual and easy to use. Next, use HomeUnion®ís RENTestimate tool to dive a little deeper into some of the market-rate pricing valuations for your property, for rentals in your location and for the cost of operating your property.
After that, itís best to supplement this research with some extra information that sites such as Cozy, Rentometer and Craigslist can provide. It also might be a good idea to cross-reference HUDís Section 8 rental rates. The department publishes an annual list of these on their website that can be broken down by state, county and Zip code.
Having as much information as you can will help you to appropriately price your own property.
How to Calculate Rental Comps?
A general rule of thumb is that you should get a rental rate that is close to about 1 percent of your propertyís value. That doesnít mean you should do that simple calculation and be done with it, though. You can use that number as a guideline to form what your rent should be.
Once you have pulled as many true rental comps as you can from the various online tools and resources, you should list those comps from greatest to worst in terms of their similarity to your property. Then, you can begin to build the real number you can charge, and get, in monthly rent.
For the properties that are most similar to yours, you need to evaluate whether your property:
- Is in better or worse shape
- Has more or fewer bedrooms/bathrooms
- Has more or fewer amenities
- Is in a better or worse location
You can take an average of the few properties that are the most similar to yours, and then adjust your monthly rent asking price based upon the factors above. If your property is generally on the plus side of those factors, you could expect to receive 5-10 percent higher rents. Similarly, if it is on the minus side, you could expect to receive 5-10 percent lower rents.
Of course, what you actually charge for rent once youíve built your comps will also be based on whether youíre looking to rent the property ASAP, or whether youíre willing to be patient to attract the right tenant at the right price.
Just like selling a home, running comps for your rental property is essential. Doing so will allow you to compare your property to other similar ones in your location, and help you to put yourself in the best position to rent your home for the highest possible income to the best possible tenant.
Today, it is so easy to run rental comps online that you can do so even before you have invested in a property. The key is to start with a hot neighborhood in a good market, and then find that ideal property that will attract the highest demand and greatest return on investment.
You can use HomeUnion®ís RENTestimator tool to do more research on specific properties for locations around the country. Another great tool from HomeUnion® is the INVESTimate® tool that gives you a breakdown of investment properties that are available in different cities, providing you not just the cost of the home itself, but the projected rent it could get as well as your return on investment rates.