When it comes to renting out your property you may be asking the question of how to estimate rental value. Whether the property used to be your primary residence or purely an investment property, coming up with a rent estimate is key to achieving a profitable rental property. Renting your property is a great way to generate income in the real estate market. With property selling prices increasing, it is only natural that the rental demand across the country goes up as well. However, when it comes to real estate investing, estimating rental value is not the simplest thing to do.
While some people may think that landlords simply choose a random number, there are specific computations and factors that are used to estimate a fair and reasonable rental price. Keep reading to find out how to estimate the rental value of your property.
Why Are You Renting Your Property?
Before even concerning yourself with how to estimate rental value, you must first consider why you are renting your property out in the first place. Rental properties can be on the market for several reasons, and they will help you determine how to estimate rental value. Some people rent their properties mainly for monthly income and some extra cash. While it may seem overly simplistic, your property will still appreciate in value over time. You can also choose to rent out your property as an in-between phase before selling.
When selling a property timing is everything. If you feel that there isn’t a huge demand for your property on the for-sale market, renting may be a good option. With renting, in addition to generating extra income, the value of your property in a seller’s market will be much higher when the time comes to sell.
On the other hand, others rent their properties as part of their overall real estate investing strategy. As part of their investment strategy, the renter would cover the cost of maintaining the property. Each investment is different, meaning you may need to reevaluate how to estimate rental value depending on several factors of the property. From mortgage and maintenance to property type and location, the estimated rental value will differ from property to property.
Overall renting out properties is common practice throughout the real estate market. Anyone can rent out their property and make a decent income from it if done correctly. It can also be used as an in-between phase to generate some income while waiting for the right time to sell. However, depending on your reason for renting, you may have to tweak and alter how to estimate the rental value of your property.
How to Estimate the Rental Value of Your Property
Now that you know why you’re renting your property, the next thing to do is to learn how to estimate rental value of your property. You will next ask the question, “How much can I rent my house for?”. From using its sale value as a starting point to online tools, there are multiple ways of getting your property’s estimated rental value. It really depends on what you think will work best for your property.
While there are different methods that are sure to work, the main goal is to get a fair estimated rental price. If your rental price is too high, you run the risk of not finding a tenant. On the other hand, if you set it too low, then you lose out on potential income.
If you are wondering how to estimate rental value to ensure that you get the best rate, here are five of the most common and useful methods to do so:
1. Percentage of Home Value
When thinking about how to estimate rental value, the home value is a good starting point. On average, the rent estimate should be anywhere from 0.8% to 1.1% of the home’s total value per month. For example, your property is valued at $400,000, which is slightly higher than the national average. To get your rent value estimate, get 0.08% or 1.1% of 400,000 and divide it by 12 for the monthly rental price. In this case, anywhere between $3,200 to $4,400 per month would be considered a fair estimate.
While you may always want to use the 1.1% rate to calculate your rental price, it may not always be the best choice depending on the market. As a general rule, it is best to use 0.08% in your calculations if you think that the value of your home is higher than the average home in your area. It may seem like you are losing out on money, opting for the lower percentage will help your rental price be more competitive in the rental market. If your home value is at par with other properties in your area, the 1.1% will be more suitable.
2. Comparative Real Estate Analysis
Aside from using your property’s value as a jumping point, you can also use real estate comps or comparable real estate analysis. Real estate comps refer to the act of finding a similar property to yours and basing your rental estimate off of their rental asking price. The process may be a little tricky as you will need to find properties of the same size, features, finishes, etc. all within your area. While you may think that any property within your city that is similar will do, that is not always the case. To really get an accurate number, you will need a rent estimate by address within your specific neighborhood.
Comps are a little time-consuming as you should find more than one similar property to get a more accurate estimate. It means going through several lists and data points to simply find a handful of properties. You may not find a property exactly like yours but you can increase or decrease your rental estimate slightly depending on what your property offers. Though it is an excellent method to see what your property is worth in the real estate market, it can be a tedious and tiring process if done manually.
Using a tool like Mashvisor’s real estate investment calculator and its market analysis tool can make the process a lot easier. Mashvisor’s market analysis tool allows you to input your address and property type to see all the comparable listings within your area. In a matter of a few clicks, you will get a comprehensive comparative real estate analysis to estimate your property’s rental value. Sign up for Mashvisor’s 7-day free trial and learn how to estimate rental value efficiently today!
3. Covering Property Expenses
When it comes to investment properties, getting an estimate of how much it would cost to maintain your property is a helpful way to estimate your rental value. As an investor, the last thing you want is for your property maintenance cost to be more than the rental price. It is why you need to know not only how to estimate rental value but also how to estimate costs and taxes attached to being a homeowner. Here are just some of the costs you will need to cover as a homeowner that should be included in your rental estimates.
- HOA Dues
- Repairs and Renovations
While the above is not a comprehensive list of the costs associated with maintaining a property, they are the main things that will run up your monthly dues. Setting your rental price to cover the said expenses plus alloting some extra is the ideal situation. However, if you are not exactly renting out a property for investment purposes or bought it as a rental property investment, getting a tenant to cover the majority of the expenses can still be very beneficial. You won’t have to cover the monthly dues and by the time you place your rental property for sale, its value is sure to have appreciated.
4. Online Rent Estimator
With all of the other methods on how to estimate rental value taking up quite a bit of time, using a rent estimator is a great option to speed up the process. Using a rent estimator can quickly give you a rundown on your property’s value, comparative analysis, and the final estimate for its rental value. Knowing that rental estimates can be quite tedious, several companies offer a rent estimator for the convenience of investors. The only important thing you really need to do when it comes to online tools and estimators is finding and using a reliable one.
It is important to find one that collects its data from reliable and accurate sources so that your rent estimate is neither too high nor too low. Take Mashvisor’s Real Estate Calculator for example. Mashvisor is a fair rental value calculator that collects its data from the MLS and multiple sites to give you a comprehensive picture of how much your property is worth and its subsequent rental value.
5. Professional Services and Real Estate Agency
While all of the aforementioned are accurate and effective methods, they may not work for your lifestyle. If you feel that you lack enough knowledge on how to estimate rental value of your property and do not want to solely rely on an online tool, you may want to look into hiring a professional. Visiting a local real estate agency or hiring an agent can take a lot of the pressure off you when it comes to renting your place. As part of their job, they should have extensive knowledge of the area’s real estate market and how to create a fair estimate regarding your property rental value.
Though very helpful, professional services will cost more than doing them yourself. When your property is listed and rented, the agent will automatically get a percentage of that depending on your contract. Additionally, though most real estate agents or agencies will include rental estimates in their services, not all do. So, it would be best to double-check before working with them.
Where to List Your Property
Once you’ve gotten your rent estimates and decided on what you think is a fair price range, it’s time to list your property. If you decide to work with a professional real estate agent, chances are that they’ll list the property for you. However, if you have not hired anyone, you will need to choose where to list your rental property. Where you list your property can make a big difference. While you may have calculated a fair and reasonable rental price, if no one sees it, then it’s unlikely for it to be rented out.
Depending on your target market, one site may be better suited for your property as opposed to another. Whether it be Facebook marketplace or a real estate listing site, the important thing is to find a place where there is a lot of traffic and demand for a property like yours. There are multiple sites out there that attract hundreds if not thousands of visitors each day; all you need to do is find them. However, it is important to note that the more popular sites may charge a listing fee. While the fees are never too outrageous, you will have to factor it in especially if your property is not rented out right away.
Another option would be to use a high-traffic yet free listing website like Mashvisor. Mashvisor’s Property Finder tool is not only useful in finding a rental property to buy but also an excellent place to list your property. Not only does it not cost anything to list your property on Mashvisor but potential clients can also contact you through the site for a seamless transaction.
Things to Boost Your Property’s Rental Value
Aside from listing your property on a reputable site like Mashvisor, there are a few things that you can do to increase the rental value of your property. While a positive outcome is not guaranteed, doing the things below often lead to properties meriting a higher rental rate in the market. Here are three things you can easily do to justify a higher rental rate or demand on your listing:
1. New Renovations
While some people buy rental property that is brand new and needs minimal work, renovating an older property may boost its value. However, this is not to say that you must redo the entire place. Just a couple of modifications, whether it be new flooring, a renovated modern kitchen, or even just updating appliances, can really increase a property rental value.
Additionally, rental properties with newer appliances or renovations often get rented out fast as they attract many potential tenants. Though you may need to spend a couple extra $1,000 dollars on the renovations, the return on investment through rental income will more often than not be worth the renovation cost.
2. Detail-Oriented Descriptions
It may sound like an obvious thing to do, but you should be very detailed in your property description when listing. Aside from the basics of square footage, the number of rooms, parking spaces, etc. you also need to highlight the different features of your property. From having a pool or a yard to how far is it from the nearest grocery store are things that should be included in your description.
Providing a detailed description will be far more enticing than a basic one. It will make potential tenants more likely to view your property in person. Your listings show that you got a lot more to offer than other listings around the area.
3. Multiple Professional Pictures
With the quality of many smartphone cameras these days, many forgo professional real estate photos thinking that it won’t make a difference. However, getting professional photos of your rental property taken have been proven to improve a property’s performance in the market significantly. Not only can professional photos boost the potential rental income you can ask for, but they can also get your property rented out sooner rather than later.
Additionally, using multiple photos in your listings can help tenants get a better sense of your property and be more inclined to inquire about it. It has been said that around 80% of potential tenants online are more likely to inquire about a property if there are 20 or more photos. Again, it will help tenants determine if your property is right for them quickly. This will, in turn, help you achieve a much more efficient turnaround time for your rental investment property.
Places With the Highest Rental Value in 2022
Whether you are renting out a previously owned property or are currently using the BRRRR strategy for your real estate investment, the main goal is to make a decent profit from your property. If you are currently looking into real estate investments then you may want to try the BRRRR strategy, also known as the Buy, Rehab, Rent, Refinance, Repeat method.
In the BRRRR strategy, the first thing you need to do is buy a property that provides high rental income each month. It will ensure that you will not only be able to cover all the expenses of owning a property but also have the means to buy more investment properties soon after. As an investor, the best rental properties will be fairly cheap to buy but located in an area with high rental demand. According to Mashvisor’s data, here are the top 10 best states to buy a rental property in 2022:
- Listings for Sale: 1,401
- Median Property Price: $1,100,499
- Average Price Per Square Foot: $999
- Traditional Rental Income: $2,183
- Traditional Cash on Cash Return: 1.62%
- Airbnb Rental Income: $6,428
- Airbnb Cash on Cash Return: 5.04%
- Airbnb Daily Rate: $213
- Airbnb Occupancy Rate: 90%
2. Washington, DC
- Listings for Sale: 1,732
- Median Property Price: $727,294
- Average Price Per Square Foot: $642
- Traditional Rental Income: $2,433
- Traditional Cash on Cash Return: 1.49%
- Airbnb Rental Income: $3,656
- Airbnb Cash on Cash Return: 4.09%
- Airbnb Daily Rate: $168
- Airbnb Occupancy Rate: 64%
3. Rhode Island
- Listings for Sale: 474
- Median Property Price: $834,551
- Average Price Per Square Foot: $483
- Traditional Rental Income: $2,215
- Traditional Cash on Cash Return: 1.40%
- Airbnb Rental Income: $4,632
- Airbnb Cash on Cash Return: 3.98%
- Airbnb Daily Rate: $276
- Airbnb Occupancy Rate: 62%
- Listings for Sale: 28,918
- Median Property Price: $680,781
- Average Price Per Square Foot: $400
- Traditional Rental Income: $2,183
- Traditional Cash on Cash Return: 1.88%
- Airbnb Rental Income: $3,780
- Airbnb Cash on Cash Return: 3.71%
- Airbnb Daily Rate: $201
- Airbnb Occupancy Rate: 64%
- Listings for Sale: 413
- Median Property Price: $587,313
- Average Price Per Square Foot: $333
- Traditional Rental Income: $2,513
- Traditional Cash on Cash Return: 1.57%
- Airbnb Rental Income: $4,046
- Airbnb Cash on Cash Return: 3.60%
- Airbnb Daily Rate: $328
- Airbnb Occupancy Rate: 52%
- Listings for Sale: 19,421
- Median Property Price: $1,089,649
- Average Price Per Square Foot: $954
- Traditional Rental Income: $3,366
- Traditional Cash on Cash Return: 1.93%
- Airbnb Rental Income: $3,366
- Airbnb Cash on Cash Return: 3.26%
- Airbnb Daily Rate: $270
- Airbnb Occupancy Rate: 65%
- Listings for Sale: 1,168
- Median Property Price: $984,379
- Average Price Per Square Foot: $637
- Traditional Rental Income: $2,190
- Traditional Cash on Cash Return: 1.31%
- Airbnb Rental Income: 31%
- Airbnb Cash on Cash Return: 2.54%
- Airbnb Daily Rate: $311
- Airbnb Occupancy Rate: 52%
- Listings for Sale: 3,049
- Median Property Price: $585,914
- Average Price Per Square Foot: $285
- Traditional Rental Income: $2,341
- Traditional Cash on Cash Return: 1.34%
- Airbnb Rental Income: $3,419
- Airbnb Cash on Cash Return: 2.44%
- Airbnb Daily Rate: $235
- Airbnb Occupancy Rate: 55%
9. New Jersey
- Listings for Sale: 8,313
- Median Property Price: $635,523
- Average Price Per Square Foot: $737
- Traditional Rental Income: $2,177
- Traditional Cash on Cash Return: 1.68%
- Airbnb Rental Income: $3,037
- Airbnb Cash on Cash Return: 2.10%
- Airbnb Daily Rate: $232
- Airbnb Occupancy Rate: 53%
10. New York
- Listings for Sale: 11,988
- Median Property Price: $1,246,717
- Average Price Per Square Foot: $1,683
- Traditional Rental Income: $3,003
- Traditional Cash on Cash Return: 1.16%
- Airbnb Rental Income: $3,936
- Airbnb Cash on Cash Return: 1.44%
- Airbnb Daily Rate: $201
- Airbnb Occupancy Rate: 67%
The Bottom Line
Renting out your property can be done for varying reasons. However, regardless of the reason, you will need to calculate an estimated rental value before you can even entertain potential tenants. While there are multiple methods on how to estimate rental value of a property, using an online tool like Mashvisor is convenient and time-effective.
Mashvisor’s real estate investment tools can help you come up with an estimate of your property’s rental value and compare its potential performance on the market based on similar properties in the area. Through such tools, you are sure to neither overprice nor undervalue your property in the current rental market. To start your free trial of Mashvisor, click here.