How to Determine Fair Market Rent

Market rent is determined by how much renters are able and willing to pay in your area and the best indicator is what other landlords are charging their tenants for similar properties.

Determining Fair Market Rent

It is important for landlords to keep up with the current rental rate trends in order to decide if you should increase or decrease your rents. Rents have increased dramatically in the last few years and not being aware of that could mean a loss of thousands in potential income.  However, raising the rent too high (above market rent) can mean extended vacancies which results in you having to cover the mortgage on an empty house or apartment for several months. So, it’s best to do your research in advance.

You need to know what the rents are to determine if the property cash flows after expenses such as taxes, insurance, debt service, vacancy, management fees, etc.  It’s also important to have an idea of how rent prices are predicted to change. There are many companies that can help forecast what is happening in your area which can help you react accordingly. 

If you are looking to invest in a rental property having a good idea of market rent can enable you to decide if you’ll earn a reliable income from the property. This will help you calculate your cash flow and help you determine if you will get a good return on your investment.

What Factors Influence Market Rent?

It’s important to keep in mind that market rent in your city might vary widely from the national averages, and rent can vary significantly even within the same area (for example the city versus the more rural areas).   A few factors are listed below:

• Location: If your house is in a desirable area with good schools, you can charge a higher rent than a property in a less desirable location.
• Amenities: Upgrades, open floor plans and outdoor spaces can all differentiate your property from a similar one in the same neighborhood and allow you to ask for more rent.
• Space: More square footage than other properties in the surrounding neighborhoods can equate to higher rent price.
• Bedrooms and Bathrooms: The more bedrooms and bathrooms your property has than the others in your area, the more likely it is that you can charge a higher rent.

How Do You Calculate Fair Market Rent?

Here are some ideas on how to check the market rate for rent in your neighborhood:

• Checking with property managers who handle similar properties
• Talking to members of your local landlord’s association
• Asking real estate agents
• Looking at similar rentals on Zillow or Craigslist

To determine the average rent price in your area, you’ll want to find out the rent for at least 2-3 properties that are comparable to yours. The number of bedrooms and square footage should be the same, and if possible, you should try to find ones with similar amenities.

Helpful Resources

There are also some helpful websites to help you determine fair market rent (a few examples are shown below).  Some are free and some are paid subscriptions but worth the small price. 

• Rentometer.com – You simply input your address and number of bedrooms to find out average and median rent prices in your area. You can see the addresses of the properties and see the number of BR/BA, SQFT, and rent amount.
• Zillow.com – Zillow pulls rates from hundreds of rental listings on their site. You can fine-tune your pricing by entering square footage and the number of bedrooms and bathrooms.
• RentRange.com – Similar to Rentometer.com.  It gives you complete rent rate analysis of any address and market metric reports that show you how various regions are performing.

Determining the fair market rent for your property helps you reduce vacancy, maximize profits, and increases the number of applicants applying to rent your property which improves your chance of finding good tenants.