This is one of the most important questions you have to answer before buying a rental property. You see a decent C class property that has laminate countertops, 15 year old appliances (but they run!), chipped ceramic tile flooring, pedestal sinks in the bathrooms, and you think – this would be a great opportunity to renovate, then raise the rent! But the market tells you that they’re already getting market or better rents. So forget it, I’m not investing $5,000 renovating a unit when I can’t get any more rent. That may or may not be the right call, because do you really know what you can get after you renovate it?
Look at the rent roll. What are the average rents, then what are they getting after a turn, what have they gotten for their most recent turns? Those might be closer to market than their average rents.
Check out the free websites like Rentometer. This could be a great resource for quick checks. But check the comps they use (buy the Pro-level service to see comps) and you might see their rent comps are from a year ago. Why can’t they get more recent rent comps? Their data samples are just limited so don’t put a lot of value in them.
Look for apartments available on Apartments.com. Drill into your area, click on a lot of the local apartments available, look at their offers. Usually for advertised properties there’s a rent range. That’s not too exact but it gives you a better idea of what’s out there today. Also look at availability. Sure, they are advertising for renters but their next availability isn’t for two months. Or they show you a list of 20 units available today. Both of these situations tell you about the market.
Talk to local property managers. Find the bigger ones, not one-person shops. They want to help you because you might do business with them. Ask for a Costar Underwriting Report. That will show you rent comps. Keep in mind that Costar owns Apartments.com. Costar’s rent comps should be pretty reliable.
The property managers themselves will share their opinion of local rents. Even better, they can tell you what you can expect from a renovation. $50 premium or $150 premium. They’ll know.
Top multifamily buyers, those who share their knowledge with us through podcasts, often have sophisticated market analysis for rents. They are paying for current, reliable data and might have an edge on the rest of us, but keep in mind, they can’t buy everything. And they won’t have the insight that you have by thoroughly immersing yourself in that market.