How to Estimate Rental Value: The Investor’s Complete Guide

If you’re thinking of renting out your property, you may be wondering how to estimate rental value, especially one that’s fair in the market.

Table of Contents

1. Why Are You Renting Out Your Property?
2. How to Estimate the Rental Value of Your Property
3. Where to List Your Property
4. Three Things That Will Boost Your Property’s Rental Value
5. Ten Places With the Highest Rental Value in 2022

Investing in rental homes is the most popular way to make money in real estate.

But in order for your rental home to be profitable, you will have to set the right amount of rent that won’t scare tenants away while generating a positive cash flow for yourself.

For this reason, any investor who wants to buy a rental home needs to know how to estimate the fair rental value of a property based on several factors that we will discuss later.

The ability to estimate the rental value of a property and decide on the right rental rate is one of the best ways to become a successful real estate investor.

This article will guide beginner rental investors on the things they should know, such as:

• How to estimate the fair rental value of a property
• What practices can they do to increase their rental income
• How to improve the rental value of their property

As an added bonus, at the end of the article, we will provide you with a list of the top-performing markets in the US based on Mashvisor’s latest nationwide rental estimates. These also include the projected return on investment that properties promise in these markets.

Why Are You Renting Out 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.

There are many benefits and a few risks associated with renting out your property.

It’s important to understand these benefits and risks and weigh them carefully before making a fair assessment of your decision.

Reasons to Rent Out Your Property

People who rent out their properties often do so for one of two reasons:

1. To Maximize Profit Before Selling

Some people rent their properties mainly for monthly income and 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 instead.

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.

In other words, if you’re buying a property for the purpose of reselling it at a profit, you can use the time in between to squeeze out extra revenue through renting.

For example, you end up holding the property for six months before you’re able to sell it. You then decide to rent it out for $1,000 per month for this duration. That’s an extra $6,000 that you will have made from the property before even selling it.

2. As Part of an Overall Investment Strategy

On the other hand, others rent their properties as part of their overall real estate investing strategy.

Here, 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 a 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 out, you may have to tweak and alter how to estimate the rental value of your property.

Risks of Renting Out Your Property

Just as there are plenty of benefits to renting out your property, there are also risks that you need to be aware of.

Some of these risks are related to your finances and analytical flaws, while others are unpredictable and may result from the nature of your tenants.

So, let’s talk about the most common risks or hassles related to renting out a property.

Financial Uncertainty

One of the biggest risks related to rental properties is the market’s fluctuations.

In other words, regardless of how well your rental property might be performing, if the market shifts, your property’s performance will be affected.

While this is something that most experienced investors take into account while calculating and planning their investment, no one can fairly and accurately predict or control the market and how it moves.

This can result in situations where property prices drop significantly, making it far more affordable to buy a property than to rent.

In this case, if you already own a rental property, you can expect to see its rental value drop significantly.

Tenant Hassles

Very commonly, rental properties can be risky due to the unpredictability of tenants.

It is common to hear stories about tenants who wrecked the rental homes they were staying at, or who overstayed their welcome and wouldn’t leave. These situations would often lead to the landlord having to take legal action and go through a slow and cumbersome evacuation process.

Although this is more common if you’re running a short-term rental, it isn’t uncommon to see these kinds of issues with long-term rental homes as well.

Unfortunately, investors who run rental homes without a fair and solid rental agreement will find themselves facing the unfair side of the law. This is because tenants will often have stronger rights supporting them as opposed to landlords and hosts.

Related: How to Evaluate a Rental Property Quickly 

How to Estimate the Rental Value of Your Property

Now that you know why you’re renting out 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 rental income can I make from the property?”

There are many different approaches and types of data that you can rely on when it comes to knowing how to estimate the rental value of 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 tenants. 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. 8% 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.

Pros

The great thing about this approach is that it doesn’t require you to have a lot of data about properties you want to estimate the rent for.

If you’re looking for properties for sale, then the home’s price will be the first piece of info that you would know about it.

This means that the percentage of home value approach can be used to estimate the rental value of any property on the MLS or any large number of properties in the same market.

It is considered a good approach to use when you want to get a quick glimpse or a baseline value to use when you estimate rental values.

Cons

The bad thing about this approach is that it can be inaccurate.

Simply put, there are several factors that can affect the rental value or rental rates that a property can fairly have.

These factors can be internal or external.

Internal factors may include your personal finances, such as your mortgage’s interest rate going up and making it so that your property’s rental income can’t keep up with your monthly mortgage payments.

They could also include things like the condition of the property and the amount of money needed to renovate it or to keep it running.

External factors are more important, however, as they are less predictable and require you to pay more attention and make a more detailed analysis.

These may include market changes in the overall market or developments in the local market that can affect the value of the property.

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 on their rental asking price.

The process may be a little tricky as you will need to find properties of the same size and features, all within the same area as the property you’re estimating the rent for.

While you may think that any similar property within your city 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.

Benefits of Using Rental Comps

Rental comps are considered the go-to method of estimating the rental value of properties.

Although it requires more time and attention, eliminating properties that are not highly similar to the one you’re analyzing ensures that the results you’re getting are accurate.

Additionally, you can include any other type of info in your rental comps analysis to get more insights and learn about more aspects of your investment.

For example, by using comps to analyze different markets, you can find the optimal type and size of property to invest in if you focus on metrics such as rent per square foot.

This provides for a fairer comparison that is based on actual market performance. But of course, it is still not sufficient and needs to be combined with other analytical methods for the best results.

How to Analyze Rental Comps

Comps are a little time-consuming. Once you’ve collected large amounts of data about the properties and markets you’re interested in, you will have to then sort out the data and use an Excel spreadsheet to analyze it.

If you’re a beginner investor, using a spreadsheet is one more thing that you will need to learn about, even if you don’t intend on using it yourself.

Traditionally, real estate investors would manually use spreadsheets to compare properties by hand and determine which one they should invest in and how much rent they should ask for.

But nowadays, investors may choose to rely on one of the several online tools and platforms that provide free spreadsheets or provide a solution in other ways.

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. Property Expenses

When it comes to investing in rental homes, it doesn’t matter how much rental income your property is making if it has a negative cash flow.

A negative cash flow means that the property is costing you more to maintain than it is generating in revenue.

In other words, if the costs and expenses related to being the homeowner of a rental property are too high, then you’re going to lose money on your investment.

So, it is very important to take into account all costs and expenses when analyzing your rental strategy. These include both costs that you pay once upon closing the deal and recurring expenses that you have to pay for as long as you own the property.

One-Time Costs

One-time costs are fees and payments that you make in order to finalize the deal and own the rental home.

These can include any number of expenses, including but not limited to:

• Closing fees
• Appraisal fees
• Renovation costs
• Furnishing
• Down payment

Since these costs are typically only paid once, they don’t play as big of a role in your long-term calculations, but they can make up a significant amount, especially if you’re factoring in the down payment.

Recurring Expenses

These are expenses, such as fees, bills, and taxes, that you will have to pay on a monthly or yearly basis for as long as you own the rental home.

As a homeowner, it is your job to keep the property maintained and up to fair safety standards, as any shortcomings may result in legal action that your tenant can take against you.

Also, these recurring costs can be substantial depending on the nature of the property and the location of your investment. You should definitely include them in all of your financial calculations relating to your rental investment.

The list of recurring costs and expenses may include:

• Mortgage payments
• Property taxes
• Insurance
• HOA fees
• Rental income tax
• Permits and licenses
• Property management
• Property maintenance
• Utilities
• Cleaning fees
• Upgrades and emergency budget
• Vacancy costs

All of these fees are very important to take into account and include in your rental analysis as they play a huge role in estimating the rental value of the property.

4. Online Rent Estimator

Since all of the above methods for estimating rental value can require a lot of time, using a rent estimator tool can help speed up the process.

A rent estimator can quickly give you a rundown of your property’s value, provide a quick comparative analysis, and give you additional insights and estimates related to the rental value.

Knowing that rental estimates can be quite tedious to produce on your own, several online rent estimating tools and websites were developed for the convenience of investors. The only important thing you really need to do when it comes to online tools and estimators is to find and use 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 your property’s worth and its subsequent rental value.

5. Professional Services and Real Estate Agency

If you feel that you lack enough knowledge on how to estimate the 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 of you when it comes to renting out your place.

As part of their job, real estate professionals have extensive knowledge of the area’s real estate market and how to create a fair estimate regarding your property’s rental value.

Although, it is important to note that hiring professional real estate agents to help you with your investment isn’t a cheap option, and better agents can come with a pretty substantial fee.

When your property is listed and rented, the agent will automatically get a percentage of your sale or earnings, depending on your contract.

Additionally, though most real estate agents or agencies will include rental estimates in their services, not all of them do. So, it would be best to double-check before working with them.

Related: The 9 Best Real Estate Agent Directories

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 Zillow, 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 them in, especially if your property is not rented out right away.

3 Things That Will 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 leads 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 for your listing:

1. New Renovations

While some people buy rental property that is brand new and needs minimal work, buying an older property and then renovating it may be more cost-effective. 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 the appliances, can 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 thousand dollars on the renovations, the ROI through rental income will more often than not be worth the renovation cost.

Related: What Is a Good Return on Investment for Real Estate?

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, you also need to highlight the number of rooms, parking spaces, and other features of your property. From having a pool or a yard to how far it is 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 they won’t make a difference. However, getting professional photos of your rental property taken has 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.

10 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, which 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 properties that are affordable, have high rental income, and require reasonable costs that don’t result in a negative cash flow.

5 Cities With the Highest Traditional Rental Value

As promised, this section will provide you with a list of the five best cities in the US to invest in based on their rental value.

This list will include traditional rental properties, focusing on data related to long-term renting instead of Airbnb.

This data comes from Mashvisor’s July 2022 report, and I will be using the cash on cash return metric as the main indicator for the long-term rental value of a property.

The cash on cash return is a fair metric to use for measuring the rental value in real estate, but I will also be including additional data and metrics that you may find useful, such as the cap rate.

I also excluded properties that are too expensive or that have a low price to rent ratio.

1. Pine, AZ

• Median Property Price: $591,417
• Average Price per Square Foot: $342
• Days on Market: 68
• Monthly Traditional Rental Income: $2,493
• Traditional Cash on Cash Return: 3.59%
• Traditional Cap Rate: 3.66%
• Price to Rent Ratio: 20
• Walk Score: 43

2. Rockville, MD

• Median Property Price: $591,168
• Average Price per Square Foot: $328
• Days on Market: 37
• Monthly Traditional Rental Income: $2,514
• Traditional Cash on Cash Return: 3.05%
• Traditional Cap Rate: 3.12%
• Price to Rent Ratio: 20
• Walk Score: 49

3. Newberry, FL

• Median Property Price: $587,441
• Average Price per Square Foot: $257
• Days on Market: 62
• Monthly Traditional Rental Income: $2,481
• Traditional Cash on Cash Return: 3.05%
• Traditional Cap Rate: 3.12%
• Price to Rent Ratio: 20
• Walk Score: 52

4. Satellite Beach, FL

• Median Property Price: $598,893
• Average Price per Square Foot: $358
• Days on Market: 41
• Monthly Traditional Rental Income: $2,538
• Traditional Cash on Cash Return: 2.73%
• Traditional Cap Rate: 2.78%
• Price to Rent Ratio: 20
• Walk Score: 48

5. Somerset, NJ

• Median Property Price: $581,338
• Average Price per Square Foot: $349
• Days on Market: 69
• Monthly Traditional Rental Income: $2,453
• Traditional Cash on Cash Return: 2.63%
• Traditional Cap Rate: 2.68%
• Price to Rent Ratio: 20
• Walk Score: 8

5 Cities With the Highest Airbnb Rental Value

And here are the five cities with the highest rental value for short-term rentals or Airbnb, based on Mashvisor’s latest data.

Like in the previous list, I excluded cities with a median property price that is too high to make it fair for beginner investors who don’t have a large budget available for investing.

I also filtered out cities that have an average occupancy rate below 50%, as it is an important factor when estimating the rental value of short-term rentals.

Disclaimer: The data presented below does not indicate that Airbnb is legal and allowed in these cities. We recommend that you contact the local authorities to inquire about their short-term rental regulations before you decide to invest in the area.

1. Piney Flats, TN

• Median Property Price: $576,005
• Average Price per Square Foot: $183
• Days on Market: 63
• Monthly Airbnb Rental Income: $9,811
• Airbnb Cash on Cash Return: 7.96%
• Airbnb Cap Rate: 8.03%
• Airbnb Daily Rate: $318
• Airbnb Occupancy Rate: 56%
• Walk Score: 22

2. Shirley, NY

• Median Property Price: $586,592
• Average Price per Square Foot: $300
• Days on Market: 101
• Monthly Airbnb Rental Income: $7,381
• Airbnb Cash on Cash Return: 7.92%
• Airbnb Cap Rate: 8.04%
• Airbnb Daily Rate: $350
• Airbnb Occupancy Rate: 60%
• Walk Score: 70

3. Dublin, PA

• Median Property Price: $476,281
• Average Price per Square Foot: $216
• Days on Market: 116
• Monthly Airbnb Rental Income: $7,311
• Airbnb Cash on Cash Return: 7.75%
• Airbnb Cap Rate: 7.85%
• Airbnb Daily Rate: $300
• Airbnb Occupancy Rate: 70%
• Walk Score: 41

4. Blaine, MN

• Median Property Price: $427,599
• Average Price per Square Foot: $175
• Days on Market: 66
• Monthly Airbnb Rental Income: $6,893
• Airbnb Cash on Cash Return: 7.55%
• Airbnb Cap Rate: 7.65%
• Airbnb Daily Rate: $282
• Airbnb Occupancy Rate: 65%
• Walk Score: 37

5. Tivoli, NY

• Median Property Price: $476,580
• Average Price per Square Foot: $270
• Days on Market: 40
• Monthly Airbnb Rental Income: $6,718
• Airbnb Cash on Cash Return: 9.01%
• Airbnb Cap Rate: 9.15%
• Airbnb Daily Rate: $301
• Airbnb Occupancy Rate: 65%
• Walk Score: 34

The Bottom Line

Knowing how to estimate rental value of properties in real estate is a necessary skill that any investor needs to have before investing in rental properties.

Whether you already own a home or are still looking for a property, knowing how to estimate its rental value is a skill that you’d want to have.

Of course, before knowing how to do it, every investor needs to be educated about why they’re learning how to use that skill and how they can estimate the value using thorough analysis.

From gathering data to knowing how to calculate the expenses, rental investors need to learn all there is to know about properties before investing.

Luckily, if you don’t know how to do it on your own, you can hire professionals who know how to estimate the rental value for you, but that comes at a cost.

Instead, you can use an online tool such as Mashvisor to make things much easier for you.

Mashvisor’s real estate investment tools can help you come up with an estimate of your home’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 home in the current rental market.

To start using our real estate investment tools today, click here to sign up for a 7-day free trial followed by 15% off for life on your Mashvisor subscription.