Published April 16, 2020. Updated July 27, 2023.
Setting the ideal monthly rent for your investment properties can feel like a guessing game. As much as you might want to set the monthly rent at a price you have in mind, your property and the rental market are the true drivers of how much you can (and should) charge for residents to live in your property.
So, how can property investors know the ideal rental rate for each set of apartments in their portfolio? Every property is different, which means every property in your portfolio needs a rental price that works for the specifics of that unit. To take the "guessing" out of the pricing game, our rental management experts are here to help!
Today, we give insights into how to determine the right rental prices for your properties. It's called a rental analysis, and we'll tell you everything you need to know about how it works and how it benefits a property investor's bottom line.
What Is a Rental Analysis?
A rental market analysis is an invaluable tool that offers a comprehensive view of how your investment properties, including both multi-family and single-family units, align with the current local rental market conditions.
Lacking this crucial data, a property owner runs the risk of either overpricing or underpricing units, which could lead to extended vacancies or lost revenue. As an experienced property management company, we can tell you that this analysis not only benchmarks your property against similar listings but also helps you understand the demand dynamics, tenant preferences, and even seasonal fluctuations.
This equips you with the knowledge to strategically price your properties, maximizing occupancy rates and optimizing your overall portfolio's profitability.
What Happens When the Price Is Wrong?
As one of the leading providers of apartment management Seattle has to offer, the simplest answer to this question is that you lose money!
An overpriced property deters renters from living in your rental. When residents don't want to pay a high monthly rental rate, your property sits empty. An empty property costs you money every month that it stays vacant.
So, you might think lowering the price is the better option. However, while an underpriced property might help you find a renter faster, you'll lose money every month.
When considering the ideal rental rate, the monthly amount paid by your residents isn't "pure" profit in your pocket. That monthly rent payment has to cover:
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The monthly mortgage payment
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Insurance
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Property taxes
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HOA fees (if applicable)
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Rental property maintenance (including enough cash flow for emergency repairs)
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Fees for property management services
Only then is the remainder available profit in your pocket!
Without knowing your ongoing expenses and how your properties compare to other similar rentals in the neighborhood, you won't know if you're charging enough rent to cover expenses while also yielding a profit.
If you're not making any money on your investment properties, you won't reach your long-term wealth goals!
What Goes Into a Rental Analysis?
Seattle property management experts use a rental analysis to help property investors determine the ideal monthly rental price. That price is a balance of covering the property's expenses, generating a profit, and staying competitive in the Seattle rental market.
Property investors need to analyze several key areas when conducting a rental analysis to see how their properties stack up.
The Neighborhood
Your next residents aren't looking "only" for a home; they want a community that fits their lifestyle. So, what's the neighborhood like? Is it appealing to potential renters? Think about the neighborhood as part of your rental analysis.
When analyzing a neighborhood, your property's rental price should reflect:
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The quality of nearby schools
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Access to public transportation, highways, and airports
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Availability of nearby parks and recreation
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The proximity of shopping, restaurants, and other entertainment.
If you're considering a new investment property to add to your portfolio, these are critical characteristics to consider. You'll also want to notice if there is a high vacancy rate for rental properties and closed or empty businesses. Too many vacant properties can be a sign to walk away from an available property.
Nearby Properties
To understand how your property stacks up against the competition, your rental market analysis must include a detailed comparison with similar properties in the area. Focus on rentals that share key attributes like square footage, number of bedrooms and bathrooms, and amenities such as a pool or gym.
If you find that you're charging higher rent than comparable properties, you risk losing quality tenants who may opt for more affordable options. Conversely, if your property offers unique features or is in a more desirable location, you might be able to justify a higher rent.
Either way, a thorough analysis helps you competitively price your property to attract the right tenants while maximizing your revenue potential.
Vacancy Rates
Knowing the vacancy rate for similar properties in the area helps determine your monthly rental price.
How long do nearby properties sit empty? If you see a "sweet spot" rental amount that helps reduce turnover times or resident turnover for similar properties, factor that into your decision when setting the monthly rental rate for your properties.
Property Value and Purchase Price
Understanding your monthly mortgage payment for your rental property is just the starting point in assessing its profitability and setting the ideal monthly rent amount. To remain competitive and generate a steady income, it's vital to weigh each property's value against other rentals in the market.
Take into account factors such as location, amenities, and the general condition of the property. Additionally, keep an eye on how the property's value has evolved over time—whether it's appreciated or depreciated can significantly impact your long-term investment strategy.
Considering all these variables allows you to price your property appropriately, attracting the right tenants and ensuring a satisfactory return on your investment. Keeping abreast of market dynamics and property values empowers you to make data-driven decisions that optimize your revenue.
How Can Property Owners Find the Information They Need for Rental Analysis?
Where can property investors get the information they need for rental analysis on a potential rental property? How can you interpret the information to determine the ideal monthly rental rate? Seattle property managers can help!
To understand local real estate trends, consult your county's property tax records or speak with local realtors. There are also various resources to help you conduct a rental analysis, including online platforms like Zillow to provide an idea of prevailing rent rates in your area, ultimately, a property manager is the best resource for a thorough rental analysis.
The best property management companies offer this service for existing properties or investments you have your eye on when growing your portfolio. We offer it free here through Real Property Associates because we want every investor to understand the ideal rental price for a property to maximize returns.
Let Our Experts Help With a Rental Analysis!
Before you set the next monthly rent amount for a rental property, let our experts help! Real Property Associates has years of property management experience in the Seattle rental market. We've been guiding investors on how to approach their portfolios since 1991.
We offer a Free Rental Analysis to learn about your property and help you see the potential income you could generate with the right property management in place. Whether you're considering adding a new property to your portfolio or you're not sure if the rental price is right for a current property, get in touch!
