Real Estate AnalysisResidential Rental Market Analysis in 5 Steps by Mays Kuhail April 16, 2020April 15, 2020 by Mays Kuhail April 16, 2020April 15, 2020Conducting residential rental market analysis for rental property is essential in real estate. Rental market analysis, or RMA for short, is the process of analyzing rental markets to determine profitability and the profitability of a specific property. This process involves researching real estate markets, making educated market predictions, conducting a neighborhood analysis, finding rental comps, estimating rental costs, among other factors.Since conducting real estate rental market analysis can be quite hectic and complex, we broke down the process into 5 steps.1) Evaluate the NeighborhoodIf you haven’t heard the saying “location, location, location…” are you really investing in real estate?Location is the first thing you should be looking into when doing residential rental market analysis. Once you decide on a city to invest in, your next step is to evaluate different neighborhoods in the area to find a good rental market. Your goal here is to find the most profitable neighborhoods and to then compare the different neighborhoods within the city. When conducting residential rental market analysis, it’s important to focus on neighborhoods, rather than whole cities. Doing this will give you a more accurate prediction for potential profit generation.Now there are a few factors that help you determine what a good neighborhood is in real estate. For residential real estate, look out for neighborhoods that are in good school districts, are safe and secure, and which are close to amenities (supermarkets, parks, shops and restaurants, healthcare facilities, gyms and leisure spots, etc.). These are things residential tenants look for when finding a place to live.Learn More: Where to Find Neighborhood Data for Real Estate Investing2) Identify the Real Estate CompsComps, or real estate comparables, refer to properties located in the same area or neighborhood. Real estate comps are also similar in size, condition, number of rooms and bathrooms, lot size, among other characteristics. Comps help real estate investors in two ways. For one, they allow investors to calculate the average rent for the area. And two, comps help investors compare different investment properties to decide which of them is the ideal real estate investment. Real estate experts advise you to look for at least three comps when conducting residential rental market analysis.Now that you know what comps are, how do you find them?There are several ways to find real estate rental comps when conducting residential rental market analysis. Traditionally speaking, you would need to consult with a real estate agent or a realtor in the area, search local ads, or look into public records. While any of these methods are effective, they can be rather time-consuming. The alternative way is to use online residential rental market analysis tools. Mashvisor’s investment property calculator is one tool that grants you access to comp reports for your area of choice.Mashvisor’s Real Estate Comps Sign Up for MashvisorRelated: How to Find Rental Comps to Price Your Property3) Calculate the Rent per Square FootNext up, you need to calculate the rent per square foot. We use square footage in real estate because it gives us a measure of “livable space” in the rental property. The value can be calculated per month or per year. Rent per square foot varies across different cities and areas in the US.To calculate the rent per square foot, you need to research rental rates, as well as have the space (square footage) of the comps you’ve selected. As you can see from the image above, you’ll get this info with Mashvisor’s comps report. You can then average that out. Simple, right?Calculating the rent per square foot is important, but make sure to keep in mind the factors that affect this value. The key here is to select similar comps to find the most accurate value.4) Adjust the Rental PriceThis step is also important to ensure accuracy when learning how to do a rental market analysis. When adjusting the rental price, you need to look into two things:a) AmenitiesAmenities affect the rental price a landlord can charge. Rental properties with a pool, that are pet-friendly, that have high security, an extra bedroom, etc. can have a higher rental price. So make sure to adjust the rental price per square foot, keeping in mind the available amenities.b) Occupancy ratesThe occupancy rate is a value that indicates the percentage an investment property is occupied during the year. If your rental property is occupied 9 months a year, your occupancy rate is 75%. The same value can be calculated for Airbnb investment properties and on a monthly or annual basis. When conducting residential rental market analysis, you should take occupancy (and vacancy) rates into account. This will help you in determining which areas to invest in and which areas to avoid. Ideally, you’d want to invest in areas where occupancy rates are closer to 100% for traditional rental properties. A vacancy rate of over 11% is considered high in real estate. If you happen to invest in a rental property with a lower occupancy rate, you may want to decrease rent to attract tenants.5) Estimate the Costs of Rental PropertiesFinally, and after completing the above steps, you need to calculate the expenses of rental properties. This refers to any costs real estate investors incur when owning a rental property. These can include carrying costs – costs like utilities, mortgage, insurance, and taxes. Costs can be influenced by factors such as location and housing inventory. You want to make sure that investment properties are priced low enough so you’ll be able to generate positive cash flow. To figure this out, you should measure the costs of rental property against rental price per square foot. The above calculations will thus help you decide which of your select investments is most profitable in the area.Final Words on a Residential Rental Market Analysis…Running a residential rental market analysis is vital in real estate, but it can be a time-consuming and difficult process. To make the process less challenging, you can use Mashvisor. Mashvisor is a residential rental market analysis tool that offers the necessary data needed to conduct an RMA. Our investment property calculator can display comp analytics as well as key data such as cash on cash return, cap rate, occupancy rate, and neighborhood analytics. This will allow you to select the best neighborhoods to invest in and find the ideal investment property. Start out your 7-day free trial with Mashvisor now.Related: Real Estate Rental Market Analysis: A How-To Guide Start Your Investment Property Search! START FREE TRIAL Investment CalculatorMarket AnalysisNeighborhood AnalysisRental Comps 0FacebookTwitterGoogle +PinterestLinkedin Mays KuhailMays is a Content Writer and freelance creative writer with multiple years of experience in US real estate market analysis. Mays has background in communication, content development, and digital marketing. She holds a BA in Business Administration and Marketing. Previous Post US Home Prices to Hold Steady Despite Pandemic Next Post Why Spring Is the Best Time to Buy Real Estate Related Posts How to Calculate the Cap Rate for an Investment Property Effective Gross Income in Real Estate: What Is It and How to Calculate It? How to Be a Successful Real Estate Investor with Mashvisor How to Calculate ROI on Rental Property – The Ultimate Guide Investment Property for Sale: Are You Buying the Best One? 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