With the interest rate at one of its highest levels in decades, more people are forced to rent homes in favor of buying one of their own nowadays.
This is good news for investors wanting to profit from residential rentals, but you'll need to tread carefully when setting your rent, or you could drive potential tenants away. With rent prices becoming a major stressor for tenants across the country, it's important to set a fair rental rate to attract new tenants or retain your existing ones.
One way to do this is by conducting a rental analysis, which also comes in handy when purchasing a new investment property.
What Is a Rental Analysis?
A rental analysis involves computing the ideal rental rate for an investment property. It's usually carried out by investors looking into the feasibility of buying a property or by landlords setting rent for a new property.
These calculations help you figure out how much you can expect to earn from rental income per month. You can use them to set an attractive price for your home.
When viewed in tandem with your expenses related to a rental property, they help you make sound investment choices.
How to Do a Rental Analysis
Performing a rental analysis isn't difficult, but it requires extensive research. These are the steps involved:
Research Local Rental Rates
Do an online search, or look on local notice boards to discover local rent rates. Looking at properties with many similarities to yours will help you determine how much rent you can charge.
Beware of properties that have been listed for a long time. This can indicate that they're overpriced.
Consider Vacancy Rates
Demand and competition depend on vacancy rates in an area. An oversupply of rental units means that there's little demand for these units in the area.
This makes it challenging to find tenants, especially if your prices are too high.
A local realtor or experienced property manager can help you with data on vacancy rates, or you can look to official sources for the information you need.
Look Into Local Economic Factors
Anything that affects the financial well-being of a community impacts rental rates, too. The following economic factors can impact rent prices as well as vacancy rates:
- Job Growth
- Industry developments
- Population trends
People go where there is work to sustain them. So, new developments and job openings will always lead to a population increase.
Learn About Tenant Demographics
Learning more about the people who live in an area will help you determine your target market. For instance, some places have a high percentage of retirees, while others are inhabited mostly by families.
Knowing your target market and their preferences can help you set an appropriate rent price and attract more tenants.
Get Help With Your Rental Property
Whether you're a seasoned real estate investor or embarking on your journey as a landlord for the first time, it's vital to get expert help when setting rental rates.
Working with a property manager is one way to streamline the process and ensure an accurate rental valuation. PMI Heart of Texas is backed by over 20 years of real estate experience to guide you through the process.
Enter your home address for a free rental analysis or sign up with us to enjoy our ongoing property management expertise.
