Rents are going up across the United States. In 2022, six states experienced average rent prices that were more than 20% higher than the previous year. Real estate investors may see these high rent prices and think they can set their tenants’ rent at whatever price they want, but that’s not always the case.
Every rental property owner should perform a rental analysis before purchasing a rental property. The rental analysis will help you figure out what you can reasonably expect in terms of monthly rental income.
Below, you’ll find a guide that will help you understand how to perform a rental analysis. A calculated rental analysis can save you from a lot of the headaches that come with owning rental property. Continue reading to find out more about renting out property.
Start by Analyzing Your Monthly Expenses
The only way to produce a positive cash flow each month is to charge more for rent than you’re spending on the property each month. If your property can’t attract a high enough rent to cover these costs, it’s not worth the investment.
When adding up your monthly costs, the first thing you need to think about is your mortgage payment. Be sure to also calculate insurance, property management fees, property taxes, and any HOA fees. Once you have this number, you know the minimum amount you need to charge for rent.
Analyze Comparable Properties in the Area
Your rental analysis could be pretty easy if your property’s neighborhood has a lot of comparable properties available for rent. Look for properties in the area that have the same number of bedrooms, bathrooms, and square footage.
Find the average rent of all the comparable properties and use this as a baseline number for what you can expect to charge for rent. Next, you’ll have to think about vacancy rates.
Set Rent With Vacancy Rates in Mind
If your property is a little nicer than the other properties in the area, you should be able to charge slightly more for rent. On the other hand, you could decide to set rent a little lower than the comparable properties to reduce vacancy rates.
High prices properties generally have higher vacancy rates because renters can find equally attractive properties at a lower price point. Looking at your expenses will help you establish a minimum amount to charge for rent.
Comparing your property to others in the area will give you general guidelines for how much to charge for rent. Once you've got those calculations down, you can play around with different vacancy rates to decide how much you're comfortable charging for rent.
Understanding How to Do a Rental Analysis
Performing a rental analysis is an important step every investor should take when doing their due diligence.
Once you perform the analysis, you’ll know for certain whether or not your property has the potential to be profitable. If you need help with rental analysis or managing your rental property, get in touch with the real estate experts at Utah Property Solutions.