Author Topic: Calculating rents  (Read 182 times)

Le Poisson

• Senior Mustachian
• Posts: 11722
Calculating rents
« on: May 14, 2019, 01:51:45 PM »
Wondering how LLs on here calculate the rent on their units.

My considerations are:
1. the rent needs to be reasonable enough that it catches the attention of people in an online listing.
2. The rent needs to be high enough to discourage poor tenants.
3. The rent needs to be reflective of the quality of the unit.

My method is to open up the online classifieds (kijiji here, likely Craigslist or similar where you are) and peel off a representative sample of units - at least 25 - and see what their ask prices are. Then in excel I calculate the average and 85th percentile prices. My price will between those.

If there are more "asking" than "available to rent" ads, I can afford to move higher in the range. If my unit looks nicer than average I can move higher. If a market is saturated (for 1brs for instance) I may need to move lower.

Based on the above, I come up with a base price, then fly a test ad to see response rate. If it is strong, I invite folks through for viewing and select tenants. If weak, I may need to revisit the price and offer a reduction.

What does your process look like?

Enigma

• Bristles
• Posts: 434
• Age: 39
• Location: Clarksville, TN
Re: Calculating rents
« Reply #1 on: May 15, 2019, 07:56:45 AM »
Being in a relatively LCOL area, the rents tend to vary by the area of town the property is.
That being said I tend to rent on the lower side of the spectrum.  Maybe because I bought the properties years ago and the capitalization rate is pretty high.  I have been raising rents but not as fast as others.  Even taxes have not been going up quickly.
For example my “2bd/1.5ba 1100sq ft townhouses” have changed from \$425 to \$450…  Then 475, 525, 575, 595 and now currently at \$625/unit

1.   The rent tends to catch everyone’s attention (offering a better product / below avg cost)
2.   The rent encourages lots of applicants (background checks/credit checks/eviction reports) (can be picky)
3.   Hooked for years (Tenants cannot/not interested in moving because they can only find things more expensive)
4.   When they move out the units tend to be cosmetic (repaint the walls \$400, new carpets \$250, deep clean \$200).  Quick turnaround of a week before the next tenant is enjoying a multiyear stay.
5.   At this time – Nothing is available of the 110 units I am managing with my dad/brother and myself

My father LOATHS when a rental sits vacant for any period of time.  That is just lost rent.  Trying to get the high end rent and waiting a couple months for a renter isnt in the cards.