Determining Fair Market Rent for Your Rental Property

At Investor Loan Source, we’re here to help you get the funds you need to invest in real estate. Rental properties can be an excellent source of income, and our real estate investor funding is a great way to get one or more rental properties under your belt so that you can begin collecting rent. But exactly how much should you be charging for rent anyways? This blog will help you learn how to calculate a fair rate for your rental property.

Why It’s Important to Know the Fair Market Rent

The fair market rent (or FMR) is an essential piece of knowledge to have, whether you’re looking for a rental to buy, listing a vacant rental property, or adjusting your current rent charges. Ensuring that you’re charging a fair rate for rent will help you to fill your property quickly, help you keep good tenants for longer, and help you to calculate if a property is a good investment.

When listing a property, you want to ensure that the monthly rent you list is competitive. If your rent is too high, you’ll have a hard time filling the property, which means you’re left paying the expenses on a vacant property. If your rent is too low, you may fill the space quickly, but you’ll likely end up making very little on the property—if you make anything at all. The same applies to adjusting your current rent charges.

If you’re looking for a property to invest in, knowing the FMR for such a property can help you to calculate whether or not the property is a smart investment. If the FMR for that area is less than what it will cost you to run the property, it might be a good idea to invest somewhere else.

What Factors Will Impact FMR?

The FMR for any given property is impacted by many of the same factors that would impact the purchase price of the property. These include:

• How desirable the area is to live in

• Square footage

• Number of bedrooms and bathrooms

• The type of property (single-family home, townhome, apartment, etc.)

• Age of property

• Condition of property

• Any additional amenities that improve the property’s desirability

Now that you have a basic understanding of what will impact your property’s FMR, let’s get into how to calculate it.

How to Calculate FMR

The first and best step to take when trying to calculate FMR is to look at comparable properties in your area to see what other landlords are charging. You should aim to find at least three properties that are as similar as possible to your own, but the more comps you find, the more accurate your rental calculation will be.

When looking at comps, keep the factors listed above in mind. If the other properties you’re looking at have additional amenities that yours doesn’t—such as being recently updated—or if they have less square footage than yours, you’ll need to adjust your calculations accordingly.

If you’re looking to invest in rental properties, contact Investor Loan Source to get a real estate investment loan. We’ll help you get the funds you need to purchase rental properties that will be a smart investment for your future.