So much our underwriting, our go/no-go decisions, is based on where are rents today. Not just regionally or in the major metro area, but surrounding the property we are thinking of buying. You can see the financials of your target property and you know the rents. There’s a high rent for a given unit type, and that tells you what that unit type can get, there’s an average rent, and there’s a low rent which could be your opportunity to increase rents. Can you plan on raising all rents for that unit type to the high rent they’re getting? Maybe or maybe not, depending on how the current owner managed to get that rent.
What is critical to understand is what prospective tenants will pay in your market. Other nice properties have lower rents and availability, tenants will go there. Lower rents and no availability? Different story. We use several methods to determine those rents, including Costar reports, property manager recommendations, and research on sites like Zumper, Rentometer and Apartments.com, but the most accurate analysis comes from secret renters.
We hire someone as a freelancer, a virtual assistant, to contact other properties nearby and say they want to rent an apartment. We have a number of questions for them to ask, but they’re going to ask the questions as a conversation, not as an interview. They will enter the answers they’re given in a spreadsheet and send it to us when they’re done.
The information we receive has been much more valuable than any of the other sources. We find out, for example, that 1 bedroom units don’t stay available for more than two days, or that everybody these days has a pet, or that those rents come with a huge move-in special because the demand is just not there. We find out about utility billing – are all bills paid, individually metered, RUBS? And what are tenants being charged for RUBS?
Amenities make a big difference too. Pools may be completely empty nearly all year round but if the climate is hot, tenants may want a pool even if they never use it. Same for fitness rooms, dog parks, barbecue grills, community lounges. What the tenant gets for their rent will determine which property they move into. These are details you will never get anywhere else except asking around.