This is a quick tutorial around performing a free rental rate analysis using the free version of Rentometer.
We’re gonna be using a tool called Rentometer. Not familiar with Rentometer? It’s a very handy tool. You can quickly (and easily) get rental rates for a specific type of property in a specific area. We love the tool because of its easy to use and provides solid data.
Although we use the Pro version for our actual analyses, for this example we’ll be showing you the free version. The free version of Rentometer still provides rental rates based on a sample of comparable properties within a certain radius of your subject property.
Why would you need to do a rental rate analysis for a property?
If you’ve never done a rental rate analysis in the past it’s good to understand why you would use a tool like this. In other words, when would you need to determine the rental rates of a rental property?
Really, there’s two common situations where you would need to do a rental rate analysis:
- You have a rental property that you’re turning over and getting ready to rent. Knowing an accurate rental rate for your specific area and for your specific property is definitely important. You want to make sure the unit isn’t overpriced because it will be sitting vacant for too long. You also want to make sure that its not underpriced. Obviously, if you’re not charging enough for rent you’re not getting all the rental income you can.
- You’re looking to purchase a property that you’re thinking about holding as a rental. You want to make sure that you understand what your potential gross rents are. This is critical as it is your high-level rental revenue or what we like to call the gross rents. This is ONE of the key factors in determining the economics of the property – should you buy it or not.
Those are the two situations where a tool like Rentometer becomes very important. It gives you the information you need to make informed decisions based on actual data.
There is a free version of Rentometer, which is free but its a limited version. That’s what we’ll be using for Part 1 of this series.
Limitations of the free version of Rentometer
The free version of Rentometer is good if you’re only doing 1-2 properties per month and just want high-level data. With the free version they only allow you so many searches per given time period. Also, the search criteria and data provided are limited compared to the Pro version. You can see the differences in the Rentometer memberships by visiting their site.
However, even using the free version is a good way to get information for your one-off analysis. Again it’s a good option if you only have 1-2 properties you need to analyze per month.
The Pro version is worth looking into if you’re analyzing a bunch of properties per month. It’s also a better fit if you need more data and/or search capability.
The process: how to analyze the rental rate of a property using the free version of Rentometer
For our example, we are going to use a property we are familiar with. This is so we have the actual rents as another data point to determine accuracy. This property is a duplex. Each unit has 2 beds, 1 bath.
When you go to the homepage, the screenshot below is what you will see. It is a very clean, simple screen that has a search function on it.
- To start you enter an address into the search criteria along with the number of bedrooms and bathrooms.
- Press the “analyze address button.”
For the Rentometer Pro membership, there are additional features and criteria that you can use to make the result more accurate. But, for the purposes of this example, the information is adequate for a free analysis.
What information you get from the free version of Rentometer’s analysis
When you hit the “analyze address button” below is what Rentometer will spit out for you.
Below is a screenshot of the result. This is the meat of the free report. It’s a pretty high-level overview of the rental rates for comparable properties in the area (within a 2-mile radius).
The free report will give you:
- What the average rental rate is
- The median rental rate
- The lower and higher percentile rates are
- A map of the comparable properties Rentometer uses for the results
It also tells you the sample information that the data is based on. This is important. You want to make sure that the rental rates you are getting are accurate and based on a good sample size.
For our example, we have a sample size of 21 properties. This means the rental rates in the results are based on 21 properties with similar characteristics (2/1 rentals seen in the last 12 months within a 2-mile radius).
You might have less or more properties. It depends on the area your property is in.
For our example, we are looking at a property in Cleveland, Ohio. Cleveland is a strong rental market with a high number of rentals. So for our example, we get a good sample of properties.
What to do with the Rentometer results: how we use them
From this data, we see that the average rent for comparable properties in the area is around $748. The median is close to this at $750. So if our property is comparable we should be ideally in that rent range.
TIP 1: We always act on the conservative side. Even if we just turned the unit over and did some work to it, we’d still factor in that we get maybe $700 vs. the average number just to be safe. What this does is when you run the analysis on the property you’ll be able to see how the economics look with a conservative analysis. In other words, with a lower rental rate will the property be positive for net operating income and cash flow? Will it have sufficient debt coverage, etc.
Why is using a tool like Rentometer critical when analyzing rental rates?
We use tools like Rentometer, alongside Zillow, MLS data, etc. because we want to have accurate, actual data instead of going off a feeling.
TIP 2: You should use multiple tools to gather an accurate rental rate for your property. Different tools will give you additional data and different insights/information.
So that’s basically the gist of using the free version of Rentometer for a high-level rent analysis on a rental. You can go to Rentometer and do a very basic analysis for free. Or check out the Pro version using the free trial.
In our next video, we’ll do a rental rate analysis using Zillow’s free rental data to compare it to Rentometer. We’ll also do a video using Rentometer’s Pro version to see what additional information we get and how to it.