Estimating Rent for Your Rental Property

Estimating rent is one of the most important aspects of real estate investment analysis. When you’re building your cap rate and cash on cash return estimates, income is a major part of the equation. In fact, a fair amount of your estimated expenses may be based on your income estimates. Property management, for example, often depends on rent.

How does one go about estimating rent? This post will explore a few resources that you may want to check as you consider investment properties.

Estimating Rent With Your Agent

If you found yourself an agent skilled in investment properties, you may be in luck here. Many agents will invest in properties themselves and could even have a good estimate with just a quick eyeball of your property. Even if they don’t know the area, their expertise in evaluating rent could be a major advantage for you.

Good agents can help you pull comparable properties to try to figure out potential rent. There is often rental data on MLS that they can pull for you and share to evaluate. It shouldn’t take them long to do and for a good agent, estimating rent is a very reasonable ask for a client evaluating investment properties.

Don’t take your agent’s estimates for granted though. Remember, while they work for you they are still incentivized to get you to buy a property. I’m not saying that all agents have their own interests in mind. It is a simple fact based upon how they are paid that there is a conflict. If they close a deal, they get paid.

Using Other Resources for Estimating Rent

There are a couple of services out there that I have had mixed results with. Some of them are free, some of them are not.

Zillow’s Rent Estimate

Zillow offers a full rental manager suite that will allow you to market, screen, and sign up your tenants online. As part of that program, there is a free Rent Estimate Calculator that you can use as well. Simply enter your property’s address and Zillow will pull comps for you.

One thing to note is that Zillow doesn’t actually know what the rent price of comparables was. They just know what the advertised rent was when it was taken off the market. That price is what will be used for comparables and isn’t 100% reliable. I imagine it’s probably quite close though.

Once you enter your property’s address, you will get a map with comps all over the place as well as a rent estimate and range. You can then further restrict the comparable homes showing on the map by:

Number of bedrooms
Type of home
Distance from your home
Amenities

Making these adjustments to your filters will not change your rent estimate. ZILLOW HAS SPOKEN, you can’t adjust their estimate by using these filters.

You can also filter by homes currently on the market as well as recency on the market. If there are plenty of comps in the area, it might make sense to only look at properties currently on the market or very recently off market.

Once you have your list of comps, ignore the estimate they gave you and look closer at your list of comps. Find homes of similar quality, same number of bedrooms, in similar locations and pay attention to the price per square foot. This will help you further zero in on where you should price your rental.

Rentometer.com Rent Estimate

Rentometer is a paid service that will try to use comps to help estimate your rent. However, it will give you a couple of reports for free if you want to try it out. You can also do a 7 day free trial that will get you “pro” filters when running your reports. You won’t get to actually see the comps unless you’re doing the free trial or paying for the service

As far as pricing, you can get a year for $80 that includes 50 reports. You can get a month for $30 with 10 reports. If you’re like me and you currently have one investment property, it probably doesn’t make sense to pay up considering free comp services available elsewhere.

As with all automated comp services, they are using a computer algorithm to help you in estimating rent. In the case of my rental property, Rentometer is showing an estimated rent of about $200 less than Zillow’s estimate. I believe it is using old rent comps, and rents have moved very quickly in my property’s neighborhood.

You may be able to adjust the lookback for the estimate using the paid service, but that is currently disabled for me and I chose not to use the service based on Zillow’s similar and free service. My take is, this is something a real estate agent might use (Rentometer allows custom branding on their reports) to add value for their clients.

Mashvisor

Mashvisor runs a program built to identify investment opportunities. This means they have to estimate both income and expenses for you, so rent comps are a big part of the analysis. You can view a more thorough review of their platform here.

I did use the free trial for Mashvisor and found that at least in my area, their rent estimates were pretty far off. To be fair, rents have currently moved a whole lot in my part of the country. It is possible with rent prices more stable and/or in different parts of the country that this platform works better.

Estimating Rent With Your Property Manager

This may be the very best way to estimate rent, but only if you use a property manager. You could ask a prospective manager to estimate rent for you, but that only works once. Also, who does that without intending to use their services? Not cool.

Just like with a good real estate agent, a good property manager should be well aware of the neighborhood and potential rents. They may even manage properties around the corner from yours already. A great property manager can also help you evaluate improvements to your property to determine cost/benefit of additional renovations or expenses.

A Word on Seasonality

Rents are seasonal. The summer months tend to be a much better market for renting your home with things quieting down significantly from October through February. Rent comps may not be accurate if they’re from the summer and you’re trying to rent in November.

Keep this in mind if you’re closing on an investment property later in the year. The rents may look great when you’re making the offer, but could drop by the time you close.

Getting Your Rent Estimate Right

You can put your home for rent on the market with a rent that is too high. It may sit there for a while and you will notice it not getting much interest. This isn’t terrible if your home is currently rented and you’re testing the market, but you will also get more attention when a home comes on the market for the very first time.

You can put your home on the market for rent that is too low. This may result in too much interest. If that is the case, you might be able to offer your best candidates the property at a higher rent given the high interest. You might also get stuck in a lease with below market rent.

However, none of this applies when you’re evaluating an investment property. We want to know what we can rent it at to see if the numbers work.