How to Determine the Rent Rate for Your Propertyby
Charge too much and you’ll struggle to find great tenants.
Charge too little and you’re leaving money on the table AND you’re probably going to have to sift through a ton of applications.
There’s a lot of work that has to go into figuring out what a fair rent rate is … and at the end of the day you won’t really know what you can charge until you start advertising it and evaluate the response (Want more on my process around renting out your property? Check out this article on troubleshooting a vacant property).
But, there is a lot of research you can do so that when you first post a rent rate, you’re in the ball park. Plus, figuring out rent rates for your area and what is happening with the rental market is always going to be a critical skill as an investor – not just when you’re renting out a property but also when you’re evaluating a property to buy! So, let’s spend a bit of time discussing this important piece of the puzzle.
Questions you want to try and answer when you are researching rental rate trends include:
• The specific rent rates for different bedroom sizes. What is the average two-bedroom unit renting for in my area, for example? What is the range being offered for 2 bedrooms? Can you identify why there’s a difference (whole house versus basement suite, apartment versus carriage home)?
• What is the average rental rate for the area and where is it trending? What was that rate last year? What about 6 months ago? Is it more, less or the same?
• What government controls exist on rents? Some areas have rent control, and that poses artificial controls on the market rents; so when you’re evaluating the numbers, you’ll want to know if that is the case.
Website resources to use (for Canadians):
• Rentometer (http://www.rentometer.com/)
• Craigslist (http://www.craigslist.org/)
• MapsKrieg (http://www.mapskrieg.com)
• Kijiji (http://www.kijiji.com/)
• Local newspapers
• Search for landlord/tenant legislation for your area to find out about rent controls.
• CMHC (http://www.cmhc-schl.gc.ca/).
A caveat about using CMHC: Please note that if you buy single family homes that CMHC is not the ideal source of information for you. They survey properties with at least 3 units. They ask for market rent, available and vacant units. They do this via phone and site visits. It’s always done in April and October so reflects that time of year as well as properties that are not the same as single family homes. Generally they will get more data on the larger buildings than any other property. This is why you’ll almost always find the rent rates they say apply to a 3 bedroom are much lower than what you can get for your properties. It’s useful for trend analysis but our rents are always higher than what they report. The one bedrooms are only a little higher but as the unit sizes increase the difference between what an apartmnet gets versus what we get for rent grows dramatically. For example, their 3 bedroom apartment was reporting a $1,011 a rent rate in their Spring 2014 report. The lowest we’re getting for a 3 bedroom suite is $1,300 and most are getting $1,400. If it’s an entire house we’re getting $1,550 or more.
Website resources to use (for Americans):
• Craigslist (http://www.craigslist.org/ )
• Local newspapers
• Search for landlord/tenant legislation for your area to find out about rent controls – many states do have very strict landlord legislation to be aware of.
• http://www.letstalkpm.com/ – a great resource to find just about anything you need to know about rentals in the U.S.
• Bigger Pockets Forums (http://www.biggerpockets.com/).
Offline rent rate research:
Drive around your chosen area, and call the numbers on the FOR RENT signs that are not those of professional property managers (you know – the homemade ones or the signs bought at Staples). Get a sense of what’s available, what they are asking, and what amenities or features they emphasize (if any). We don’t need to call the professionally managed properties because a quick look on their website usually provides us with all the details we need.
Also, take a look at housing starts and how many of them are condos, apartments, or other properties that may impact the current rent stock and rental rates.
In 2009, we bought a couple of properties in Kelowna, BC. Prices were down and we saw a few opportunities to buy in fabulous areas with growth potential. The single-family home we purchased as a rent to own did fabulously and we sold it to the tenants a year later. The two-suited home near the lake, however, has been a struggle for us. While it’s in a stellar location and in good condition, the challenge has been the large number of condos that have been built in Kelowna. Because the condos didn’t sell, the builders rented them out, dramatically increasing the rental stock in the area. We’re only just now able to raise rent rates. We really underestimated the impact of the extra supply on the rent rates.
It’s economics 101 to know that when supply goes up without an increase in demand, it puts downward pressure on rents. Our rents dropped several hundred dollars a unit – killing our cash flow.
The good news is that rents pop up almost as fast as you feel them go down. And, in every market across Canada, we’re hearing reports of rents going up. We’re raising most of our rents by $50 – $100 per unit when the tenants vacate. But first, we always do some refresher research to see what else is on the market that we’ll be competing with today and in the near future.
If you have a favourite resource for researching rent rates in your area send me a Tweet by clicking right here! I will update this post with your Twitter ID and suggestion!
Rental Rate Resource Recommendations From Other Investors:
>> From Debbie in Alberta: Another website I’ve been using a lot is Padmapper.com. I’m not sure how it works in other areas of the country, but it’s been great in Calgary so far. In terms of time efficiency, I like it because it combines ads from Kijiji, Craigslist and a couple of others into one site. One note of caution though, it also lists B & B rates which skew the numbers a little. You just have to read each listing carefully to weed these out.
>> From Wade Graham in Alberta: Rentfaster.ca has amazing stats for Alberta. Helps me every time.