If you’re seriously considering investing in rental properties, you need to know how to find rental comps in the area for proper data analysis.
Table of Contents
- What Are Rental Comps?
- What to Include in Your Rental Comps
- How to Use Rental Comps
- How to Find Rental Comps
- How to Evaluate a Rental Property: 4 Other Methods
- Let Mashvisor Find Rental Comps for You!
If you’re a rental property investor, there must have been a time when you’ve wondered whether you are charging too little for your property. Naturally, you don’t want it to be the case as you want to make rental income and positive cash flow.
That doesn’t mean you should charge too high, however, as it can negatively affect your real estate business when it comes to rental demand and vacancies. Thus, landlords and investors need to learn how to price their rental properties to find the right amount to charge for rent in their area. And the best way to do that is by looking at rental comps.
Keep reading as we explain what rental comps are, how they’ll help you set your rental rate, and how to find rental comps in your area.
What Are Rental Comps?
Let’s go over what real estate rental comps are. The word “comps” is short for “comparables.” They are comparable properties in an area similar to a subject property in size, condition, and other notable features.
Sellers typically use comps to find the fair market value and the right listing price for their properties. Buyers use real estate comps to decide how much to offer on a home for sale. Meanwhile, rental property investors and landlords use rental comps to determine how much to charge for rent.
How It Works
In order to find the right rental property that aligns with your goals, you need to learn how to find rental comps and use them properly. Several real estate websites like Mashvisor and Zillow use rental comps to provide investors with accurate market data for analysis. How exactly does it work?
A real estate website like Mashvisor or Zillow gives users access to real estate market data. The access to the data allows them to evaluate several markets, neighborhoods, and investment properties that will give them a good return on investment. Once they‘ve narrowed down their search to a handful of subject properties, they can then proceed to make an objective assessment of each using rental comps.
The rental comps, whether they’re from Mashvisor or Zillow, give investors a better idea of how the rental market is performing in the area. They can be used to determine if a prospective investment property is worth its listed price or not. They can also be used to compare traditional and Airbnb rental rates for similar properties in the area.
Rental Comps Source: Mashvisor vs Zillow
Both Mashvisor and Zillow are real estate programs that allow potential buyers to look for income properties online and modify their searches. However, as many as their similarities are, the two differ in several ways as real estate websites.
One of the glaring differences between Mashvisor and Zillow is that the former is geared toward real estate investors looking for traditional and vacation rental properties. The latter is mostly used by investors and buyers in general.
Unlike its counterpart, Zillow does not provide an in-depth rental market analysis necessary for rental property investments. So if you’re hoping to find Airbnb data analysis on Zillow, for example, it may not be the best place for you.
Unlike Zillow, Mashvisor can be used by regular investors, homebuyers, and rental investors. While Zillow offers investors insight on listing prices, estimated monthly payments, rental values, monthly costs, and rental comps, it doesn’t provide users with a thorough rental data analysis. Any savvy investor knows how important rental data analysis is, especially if they want to get the most out of their investment. It is why knowing how to find the right sources for rental comps matters a lot.
Sure, you can do it the hard way and drive around town looking for those rental properties. But why do that when you can let technology do the work for you? When it comes to choosing between Mashvisor and Zillow, you must consider what each platform can offer in light of your investment goals.
We’ve already given you a brief overview of the differences between Mashvisor and Zillow regarding rental analytics. While Zillow is a great platform for real estate enthusiasts, the better real estate analytics platform is Mashvisor.
What to Include in Your Rental Comps
Learning how to find rental comps means learning how to identify what property characteristics and qualities to look for. Searching the area the traditional way will help but using a real estate platform like Mashvisor will make the process a lot faster and more efficient.
As far as rental comps go, which ones should you include to find the right investment property?
The property’s location is very important as it will give you greater accuracy with your analysis. Simply searching for “rental comps near me” won’t give you the exact numbers you need. Being very specific with the location (street, neighborhood, or village) will let you draw the most appropriate comps in the area.
The above metric will allow you to compare rental rates with other similar properties in your location. Generally, the rent price is expressed as the average monthly rate. The metric should also identify how much the rental rate per square foot is in the area.
Property Market Value
Both Mashvisor and Zillow (as well as other real estate websites) can give investors a good idea of property prices in a given neighborhood. If you’re in the market looking for a rental property to buy, knowing how many other similar properties are selling for will let you know if a property is priced adequately or outrageously.
Knowing a property’s size and comparing it with other similar properties will help give you better results when performing your property analysis. In most cases, it also includes the size of the lot.
The property type should always be considered when looking for rental comps in an area. Owning ones that are very similar to the subject property will give you a more accurate analysis.
Number of Bedrooms
The number of bedrooms is one of the most important metrics that should be considered when looking at rental comps. The better real estate platforms, like Mashvisor and Zillow, will include the said metric in their rental comps.
Number of Bathrooms
While the number of bathrooms may not be as important as the number of bedrooms, it’s also a good thing to include in your rental comps.
The date of a property’s construction is an indicator of how old the property is and if it is in good condition considering its age. Both Mashvisor and Zillow can give the construction date to you.
Properties for sale come in different conditions. Not all properties listed on the MLS are newly built. A lot of them have been around for some years. A property’s overall condition can be used to evaluate if the price it is listed for is worth it.
Recent Upgrades and Home Improvements
Knowing if a property has recently undergone any improvements or updates is also an advantage when looking at rental comps.
Rental comps may also include some special amenities like new appliances and furniture, parking, landscaping, pool, hot tub, and play area, to name a few.
How to Use Rental Comps
You need to learn how to find rental comps because they are at the core of rental market analysis (known as comparative market analysis). Every real estate investor should run a rental market analysis because it’ll help to determine multiple things.
First of all, it’s used to analyze the local housing market in which you’re buying a rental property to understand the rental potential of the area. Meaning that it lets you know whether or not buying an investment property in a given market will yield good rental income.
Once you acquire the property, you can compare rental rates (rent comparison) of similar local properties to derive the average rent for the entire area or the local housing market. Afterward, you calculate the price per square foot for each rental comp and compensate for the differences. If you chose your rental comps correctly, the final number should be close to what you can charge for your rental property.
Again, looking for the right rental comps source will be crucial in coming up with an accurate rental market analysis. Given the two choices we’ve already discussed, Mashvisor has the upper hand on Zillow as the former has a lot more to offer to investors, especially where short-term rentals are concerned.
How to Run Comps on Single-Family Rentals
Putting together rental comps will vary based on the type of property. Here is an example of how you run rental comps for single-family rentals.
Let’s assume that a single-family property is about 1,200 square feet in size. It comes with three bedrooms and two bathrooms and rents out monthly for $1,000. To determine what the annual rent per square foot is, you just simply take the monthly rental rate and divide it by the total number of square feet. Once you get the quotient, you multiply it by the number of months.
In this case:
Rent per Square Foot (annual) = (Monthly rent/Square feet) x 12 months
Rent per Square Foot (annual) = ($1,000/1,200) x 12 months
Rent per Square Foot (annual) = 0.83 x 12
Rent per Square Foot (annual) = $10 per square foot
To get the annual rental rate, you just need to multiply the rental rate by 12. For the example above, since the property is rented out for a monthly rate of $1,000, you get $12,000 in rent annually.
How to Run Comps on Multifamily Rentals
On the other hand, rental comps on multifamily properties aren’t as straightforward as those of a single-family unit.
Let’s assume a three-unit multifamily rental has the following numbers:
- Property Area in Square Feet: 2,400
- Unit Area in Square Feet: 800
- Number of Bedrooms per Unit: 2
- Number of Bathrooms per Unit: 1
- Unit Rental Rate: $800
- Property Rental Rate (at three units): $2,400 (at $800 per unit)
- Annual Unit Rental Rate: $9,600
- Annual Property Rental Rate: $28,800
- Annual Property Rent per Square Foot: $12
At first glance, it may seem like a multifamily property is a better investment than a single-family unit. However, if you look closely, the rental rate for one unit on a multifamily property is a lot lower compared to a single-family rate.
The said difference is the reason why single-family unit rental rates are expressed on a square-foot basis while those from multifamily properties are on a per-unit (or per-door) basis.
The above is a very simplistic description of how to run a comparative market analysis.
For more details and information, read Comparative Market Analysis: A How-To Guide for Real Estate Investors.
How to Find Rental Comps
So now that you have an understanding of what real estate rental comps are and how they can help you decide how much to charge for rent, it’s time to go over the main subject of this blog post – where to find rental comps.
There are three main ways real estate investors follow to find houses for rent that work as rental comps for their rental properties that don’t really require much time or effort. They are:
1. Real Estate Agents
If you’re a beginner real estate investor, hiring an agent is one of the smartest moves you can make. Your agent will not only help you find real estate deals but also run a rental market analysis for you!
It means they will be responsible for finding rental comps for you – and who is more qualified to do it than someone who understands the business and has been in the local housing market for years?
Not to mention, a real estate agent can access the Multiple Listing Service (MLS), where they can find properties in any neighborhood and city across the US housing market. As a result, a real estate agent will know how to find rental comps in your area in no time!
2. Home Appraisers
Hiring a professional home appraiser is yet another way to find the value of your rental property and get an idea of how much to charge for rent. An appraiser’s role is to provide objective, impartial, and unbiased opinions about the value of real estate properties.
Appraisers provide help to those who own, invest in, manage, sell, and/or lend money to others to buy real estate. They do them by gathering a series of facts, statistics, and other information regarding specific properties, analyzing the data, and developing opinions of value.
If you live in a competitive housing market or you’ve made renovations to your rental property and are not sure how they affect your rental price, getting a home appraisal is a good idea.
However, with home appraisals, you’ll need to pay the home appraiser per each rental comp analyzed. In other words, you’ll need to pay a few hundred dollars several times, which may cost you almost as much as working with a real estate agent.
3. Mashvisor – The Easiest Way
The best way to find rental comps is by using online tools. Ever since the emergence of big data, predictive analytics, and machine-learning algorithms driven by AI, the real estate industry has become even more competitive than it originally was.
Now, real estate investors can’t compete without using the best investment tools, like the Rental Property Calculator. With this tool that Mashvisor provides, you can say goodbye to running a comparative market analysis on your own or hiring someone to get rental comps for you!
Mashvisor’s investment tool uses real estate data to find rental comps in your area that are similar to your investment property.
Simply enter your property information. Our calculator will then show you a complete property analysis, including estimates and data of potential rental income, expenses, cap rate, cash flow, cash on cash return, and occupancy rate. In addition, you’ll also be given a list of local properties that are suitable as rental comps.
How to Evaluate a Rental Property: 4 Other Methods
Pulling up rental comps from Mashvisor or Zillow is a great way to evaluate rental properties. However, there are other equally effective methods like the following:
1. Sales Comparison
The Sales Comparison approach is one that is commonly used by a lot of investors, agents, and appraisers in evaluating real estate properties.
The approach is quite simple and straightforward. It basically just compares similar properties that have been locally sold or rented at a given period. It is an excellent way of identifying and anticipating upcoming trends.
2. Capital Asset Pricing Model
Unlike the sales comparison approach, the Capital Asset Pricing Model takes into account the ROI from rental income and pits it against no-risk investments like US Treasury bonds and other real estate investing alternatives.
If the comparison shows that the potential return on a risk-free investment is greater than the potential return on a rental income, investing in a particular property doesn’t make sense.
The income approach takes into consideration how much the rental income will be relative to one’s initial investment. The method relies significantly on the property’s cap rate.
The income method is used a lot more in commercial real estate because it examines the potential income from renting out a property. It makes sense since not all investors are considering renting out properties. A large number of them are in the fix-and-flip business looking to make big bucks in only months.
4. Gross Rent Multiplier
Another straightforward way of evaluating rental properties is computing their gross rent multiplier. It is pretty similar to the previous approach, but this time, instead of the rental income, it takes into account the annual rent an investor can collect.
The amount used is all gross rent, which means it is before taxes, utilities, insurance, and other related expenses.
Let Mashvisor Find Rental Comps for You!
Instead of investing a lot of time trying to figure out how to find rental comps and estimate a fair price for your rental property, consider signing up for Mashvisor.
Owning a rental property that makes rental income and positive cash flow will depend on the numbers. You can make things easier for yourself by letting Mashvisor run the numbers. You can then focus on growing your real estate business and not worry about how to find rental comps in 2022!
So what are you waiting for? Click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.