How to Find Average Rent in Area of Your Choice

As a real estate investor who’s seeking to earn a positive cash flow from their investment property, you must first find average rent in area of your choice. Why is this important?

Setting an unreasonably high rental rate means you’ll push away many potential tenants and your rental property will stay vacant. On the other hand, a lower than average rate means you won’t make enough to settle your monthly bills and remain with a decent profit. You don’t want to leave money on the table.

As you can see, a good rental rate could be the difference between your property staying vacant and attracting the tenants you desire, so you can rent out the property fast.

Savvy real estate investors understand that the rental rate should be based on fair market rent. It’s essential to know how to determine the fair market rent, whether you’re just a beginner looking to buy your first rental property or an experienced investor who wants to diversify their portfolio.

In today’s article, we look at what fair market rent is and how to find average rent in area.

What Is Fair Market Rent?

Fair market rent (FMR) refers to the amount of rent a house is likely to generate monthly. In short, it’s the amount of money you can expect to make from your rental property each month. This amount is based on how much tenants pay for the same property type within the same neighborhood. As such, fair market rents are determined by property type, size, and location.

For example, the fair market rent for a two-bedroom house in a rural area could be $800. The fair market rent for the same unit could be $1,200 in a more affluent metropolitan district.

FMRs are determined annually by the US Department of Housing and Urban Development (HUD). It’s a good place to start your research since they look at rental rates across the country. However, you also want to get a localized insight so that you can understand whether the rates in your area are the same or differ from the HUD’s fair market rent projections.

Why Should Landlords Find Average Rent in Area?

Here are some of the situations when it’s essential for a landlord to find average rent in area:

When Listing a Vacant Rental Property

As we’ve seen, setting a realistic rental rate for your investment property could make or break your rental business. Looking at the fair rental value beforehand is essential since it allows you to strike a balance between maximizing your rental income and ensuring that your property is occupied all year round by long-term tenants.

Look at it this way; if you charge a rate higher than the market rent, your property will experience extended vacancy periods. This means you’ll have to settle monthly bills, such as mortgage payments, out of your own pocket.

Never charge higher than the fair market rent unless your rental has a feature that makes it stand out from other rental comparables within the same area. Even in this case, you might still find yourself having to convince your tenants why they should pay higher.

On the other hand, setting a lower rate than the market rent may get you a tenant quite quickly. However, this means that you’ll have money left on the table every month. If your rental rate is too low, it’ll be difficult for you to make a decent profit after settling monthly bills and breaking even in the end.

Having an idea of the FMR helps you determine whether the investment is worth pursuing. Since looking at comparable properties’ rental prices gives you an idea of how much to charge for your own rent, you can then calculate the monthly cash flow to expect. You can also make long-term projections to determine how long it’ll take you to break even.

When Revising Your Rent

While it’s vital to find average rent in area before listing to rent, it’s also essential when you’re already a landlord. Remember, your own expenses, such as property taxes and employee salaries, keep changing every year; you need to set a realistic rate that will give you a positive cash flow.

Determining the FMR when revising your rent lets you decide whether to increase the rent (if you’re charging too low), or decrease it (if you’re charging too high). This way, you can maximize your monthly rental income and occupancy rates.

When Selecting an Investment Property to Buy

Determining the fair market rent before you buy a rental property is essential since it helps you calculate the potential cash flow and return on investment. The FMR should exceed the monthly business operating costs. If not, the investment will not be profitable.

When Renting to Section 8 Tenants

One of the reasons why the US Department of Housing and Urban Development determines the fair rental value each year is so that it can also determine the housing voucher amounts to issue to low-income individuals through the Section 8 Housing program. If you’ll be renting to Section 8 tenants, it’s essential to know the FMR.

What Factors Influence the Fair Rental Value?

It’s important to understand that the average rent in the area of your choice could vary widely from the national averages. Similarly, the rent can also vary considerably even in the same metropolis.

Here are some of the core factors that affect the FMR of any rental property:

Location: You can charge a higher rental rate if your property is located within a desirable neighborhood. The same can’t be said about a property in a less desirable neighborhood.
Amenities: Your rental rate can be differentiated from other comparables within the same neighborhood by upgrades, open floor plans, and outdoor spaces. They can determine whether to raise your FMR or lower it. You could charge more if your property includes a gym, pool, or air-conditioning.
Property type: Your FMR can vary depending on whether your property is an apartment, duplex, single-family home, or multi-family property.
Space: It goes without saying that more square footage than other properties within the neighborhood could lead to higher prices.
Bathrooms and Bedrooms: The more bedrooms and bathrooms your property has than other comparable properties within the same area, the more likely it is that you’ll charge a higher rent.
Property age and condition: Newer properties that are well-kept are likely to attract a higher rental rate than older properties.

As you can already tell, the more desirable your property is in comparison to other comparable properties within the same neighborhood, the more rental rates you can command.

How Can You Find Average Rent in Area?

The fair market rent set by the HUD can be a good place to start your research. However, be wary when using this resource. You may not get an accurate projection since the conditions in your particular neighborhood or property may be different. So, what’s the best way how to find out average rent in an area?

Finding an accurate fair market rate may need you to get a localized view. As such, the best way to find fair market rent is by checking what other landlords in your neighborhood are charging for the same property type. Find at least three comparable properties, see what their rental rates are, then calculate the average.

When carrying out the rental market analysis, don’t forget to consider the factors we’ve listed above, such as location, amenities, property type, and property size. The number of bedrooms and square footage should also be the same. If possible, try finding units with the same amenities too. The more comparable the rental comps are to your investment property, the more accurate your estimations will be.

If the comparables are occupied for long periods and have lower vacancy turnover, it’s likely because the rental rates are closer to the FMR. Primarily, determining the occupancy rate will also help you know whether the rent is higher than the FMR, lower, or just right. Higher vacancy rates could mean that the rental prices are high too.

That said, here are some suggestions on how to find the average rent in an area:

Check with property managers who handle compatible properties
Talk to members of your area’s landlord association
Consult real estate agents
Look at rental advertisements on classified advertisement sites
Check your local newspaper, both online and print

Also, remember that if your property has some unique features, it’s justifiable to set the rental rate slightly higher than the FMR.

Using Online Tools to Find Average Rent in Area

Calling numbers listed on “for rent” signs is one way to start your search for fair market rates. However, savvy real estate investors and landlords use technology and online tools to their advantage.

You may notice that talking to other landlords and property managers may consume a lot of your time. Don’t forget that some may not be willing to share this information with you. But using online tools, you get what you’re looking for in a matter of minutes by just clicking a button.

So, which is the best online resource to check the average rent in the area of your choice?

While there are many online tools and resources you can use for this purpose, Mashvisor’s rent estimate calculator stands out. This revolutionary software uses predictive analytics, big data, and machine-learning algorithms to estimate rental income in a matter of minutes.

Aside from saving you time and energy, one great advantage of this tool is its accuracy. We pull our data from reliable resources, such as Airbnb, Zillow, Redfin, and the MLS, then apply our own AI-powered investment analysis to provide you with accurate rent estimates.

Using Online Tools to Find Average Rent in Area

Every listing page published on Mashvisor includes a Property Valuation Analytics section, which includes the rental income, expenses, cash flow, and more.

Here’s some of the crucial information you can access through Mashvisor’s real estate investment software:

Neighborhood Estimates

First, you need Mashvisor to help you find the average rental income within your neighborhood. You can do this for any housing market in the US since Mashvsior offers comprehensive market data for any area. All you have to do is enter the name of the neighborhood where your investment property is located before carrying out the market research.

To access rental data and analytics for your neighborhood, go to the search results page and click on the neighborhood name. You’ll be taken to the Neighborhood Analytics page. From the summary bar, you can see all the vital metrics that you need to assess the neighborhood, including the average rental income for both traditional and short-term rental strategies.

Determining rent estimates by location is important since you get an estimate of how much rent landlords in your area are charging. You can also use this data to compare the performance of rental properties in your neighborhood and that of other neighborhoods.

In addition, neighborhood estimates give you access to historical rental income for both traditional and short-term rental strategies. You will see how much landlords in the neighborhood have been charging and how these figures have evolved in, say, the last 12 months. You can use this to find a neighborhood where the rental rates are going up rather than down.

Find Average Rent in Area using Neighborhood Estimates

Mashvisor has an analytics page for every US neighborhood. Here, you can find not just the average rental income, but also the median property price, average price per square foot, cash on cash return, and more.

Investment Property Estimates

The Mashvisor Investment Property Calculator gives you monthly rent estimates for every investment property listed on the platform. Other than that, you can also get estimates for off-market properties whose address you enter.

For each property, you’ll get accurate estimates for:

Traditional rental income
Airbnb rental income
One-time and monthly expenses
Cash flow
Cash on cash return
Cap rate
10-year payback balance

Rental Comps

The rent estimator on Mashvisor also gives you access to rental comps for your investment property. You can find similar properties for both traditional and Airbnb rentals. To find a list of these comps and all their relevant data, click the “Rental Comps & Insights” tab. Here, you can see how similar the rental comps are to the one you’re analyzing (in percentage), their addresses, and the distance from the property of your interest.

Use Mashvisor Tools to Find Average Rent in Area and More

Mashvisor stands out from other competitor online tools. It’s the best answer to how to find out the average rent in an area. This is because aside from providing rental rate estimates, you can carry out a comprehensive rental property analysis on the platform. Using the rent estimate calculator, you will access a lot of useful data, including:

Cash on cash return
Cap rate
Cash flow
Airbnb occupancy rate

Using Mashvisor’s calculator, you can determine whether your rental estimate will yield a positive cash flow and a good return on investment. Mashvisor tools will help you determine the right rental rates in a matter of minutes whether you want to be a landlord or an Airbnb host. Sign up today and start your 7-day free trial.

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