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How Much Rent Can I Get For My House?

Posted by Julaz Properties on October 14, 2021
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You’ve heard that real estate is a good way to generate some passive income and you’re thinking about renting out your house or buying an investment property to rent for income. So, you’re wondering – how much rent can I get for my house? In other words, you need to determine the fair market rent.

Estimating the wrong rental rate for your property could be the difference between profit and loss, so it’s extremely important to determine the fair rental value of your house or apartment before making any major financial decisions.

Being just 10% wrong on your rent analysis eats all your profits. Now, imagine being just 5% wrong on rents, 5% wrong on operating costs, and a few percent wrong here and there, and suddenly your profitable deal is now losing money.

So, grab some popcorn and pay attention to this article.

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Table Of Contents

Market Rents – Defined

The market rent is the rent you could potentially receive when renting a unit in a standard ‘arms length’ transaction under normal economic conditions. This should be adjusted for any fees that are included such as utilities, amenities, etc.

What is Not the Market Rent

Let’s say your apartment listed for the fair market rental price of $1,500 per month. You are receiving showings and interest, so it’s just a matter of time until it’s leased to a qualified tenant.

Then, suddenly a financial expense pops up and you need to get some cash ASAP. So, you call all the people who viewed the apartment and offered a $150 discount if they signed and paid the deposit today.

Someone bites and you lease it at $1,350. Is this the market rent?

No.

It’s not the fair market rent because you made a financial decision due to being a distressed property owner who needed cash fast. The need for cash trumped the need to maximize profits. So, this rental value shouldn’t be considered as fair market rent.

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*Introducing*

5-Step Investing System

We have spent years developing this process that has literally generated millions of dollars in value and a stable yearly revenue for investors.

In fact, a professional investor would list the $1,500 as the market rent then write down a cost of $150/month as “loss to lease.” We won’t get into the details of that here but if you click that link you can read all about how the pros calculate this.

How to Estimate Fair Market Rent For Your House

We’ve covered what fair market rent means and why it’s important for you to be precise while estimating it. Now, it’s time to learn how to estimate the fair market rent of your rental property.

For this step, you’ll need a spreadsheet or some blank paper. Also, you’ll want to pull up your favorite source of rental listings in your area. It could be Zillow or Apartments.com or it could even be craigslist or some other classified section.

Step 1) Collect the Pertinent Information in a Spreadsheet

Your apartment is called the “subject property” and we need to collect information about this first. Generally you can just list it in a column and label each column. It could look something like this:

As you can see It’s a very simple layout with just the most pertinent information. You’ll notice rent and rent per square foot are empty because those are the pieces of information we are looking for..

Step 2) Search Apartment Listings in Your Area

Now it’s time to scour the area and try to find comparable units that are for rent or recently rented. You’ll want to narrow your search for units that are extremely similar to yours. If you can’t find many, there are ways to make adjustments to the values but I cover that in the article on doing a comparative market analysis, so go read that if you are in a complex situation.

You’ll also want to exclude units that are in dramatically different condition or areas than yours. So, don’t include the run down property renting for half the rate as others. Similarly, don’t include the luxurious newly built condos nearby, as they’ll have dramatically higher rents that you won’t achieve.

Step 3) Record the Rents and Take Notes

The reason we have the list of amenities and information below the listing. That way we can accurately compare and know we have a good match.

Hopefully you have plenty of rentals to compare to in your market area. If you’re in a small town it can get a little difficult. For simplicity we’re going to assume your units are fairly average and there’s a lot of comparable units that are rented in your area. If that isn’t the case, check out the extremely detailed article on comparative market analysis which will break down exactly how to make significant adjustments to your analysis.

Now that you’ve recorded the details of each unit, we’ll put it in the spreadsheet.

What will my house rent for?

Step 4) Adjust the Results

Inevitably, there will be some differences between the properties. The next step is to make some simple adjustments to your analysis to compensate for that. So, we’ll need to add a line to our spreadsheet to allow us to do that.

The purpose of making adjustments is to make the rent equivalent for different properties. In this example you can see one apartment does not have a garage and it also earns significantly less rent than the other units.

Based on your research in this area, you believe that tenants will pay roughly $100 extra per month for properties that have a garage as compared to those that don’t.

So, we want to think about comp 3 as if it had a garage, then what would it’s rent be? You add $100 to the current rent because it would earn more if it had a garage added.

Similarly, if it had an amenities that the subject property does not, we would subtract the value to make the comp match the subject.

adjusted rent analysis

Step 5) Average the Rents

Now that we’ve recorded all the data and made the adjustments, the hard part is over. The rest is just crunching the numbers.

Now, we’re going to want to find the average rent per square foot for these units. In this case, the average rent is $2.57 per square foot. We can extrapolate that to be a total rent of $2,183 because this unit is 850 square feet.

Average rent per foot for the unit

Step 6) Check to See if Your Work is Realistic

Once you are complete with those steps, it’s time to check to see if it’s realistic. The way we do this is to see if the nominal rent is anywhere near the rents of the other units.

What I mean by nominal rent is the total monthly rent, not the rent per foot. In this example we came up with $2,183 per month. Is it in the same range as the other 3 units?

The other rents are $2,050, $2,100, and $2,350. The rent for our unit is not the lowest or the highest. It’s actually quite comfortably in the middle. So, this rent does appear realistic.

You’ll run into issues if there are dramatic differences in the units. For example, perhaps all the comps are 600 square foot apartments and yours is 1,200 square feet.

Even if a unit is twice as large, tenants generally don’t pay twice as much for the same number of bedrooms. There is a limit to what tenants will pay, that’s why you need to compare the rents multiple ways before settling on a final price.

Now It’s Time To Estimate Operational Costs

With these straight forward steps you’ll have a good framework to estimating the potential income from your rental property. The next step is to figure out the ongoing operational costs to manage and maintain your rental property.

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