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The Ultimate Guide to Running a Rent Comp Analysis

Analyzing rental rates for comparable properties in the local market, known as a rent comp analysis, is critical to success. Rent comps provide the data needed to determine if asking rents for a potential deal represent fair market value and the opportunity for a profitable investment. Well-done rent comps also give you leverage to potentially negotiate a lower price or secure valuable concessions from a seller.

There are four key steps to running a comprehensive rent comp analysis:

Define the parameters of the deal. Determine specifics like number of units, unit sizes, location, amenities, condition and other relevant details about the property of interest and units within it. These parameters will guide comp properties selected and analyzed.

Select comparable properties. Search commercial databases, websites, local listings and consult with brokers who have deal flow meeting your defined parameters. Choose properties as comparable as possible based on all available details. Aim for 3-5 comps when possible.

Get asking rents for the comps. Determine the current listed asking rents for each unit within the comparable properties selected. Get rent prices for units as comparable as possible to those in the deal of interest. Average asking rents across comps for most and least comparable unit types.

Get actual recently signed rents for the comps (if possible). Asking rents represent what a landlord wants to charge but actual signed rents show what tenants are willing to pay in real-world negotiations. Get details on recent lease signings at the comp properties, including unit types leased and final agreed upon rents. Actual signed rents will provide the strongest analysis.

Determine market rent ranges and analyze the ask. Compare the asking rents for the deal property units against the minimum, maximum and average asking rents and recently signed rents for comparable unit types across all comps analyzed. Determine if ask prices seem reasonable within typical market ranges or if they seem too high, too low or otherwise out of line. Make a case for potentially negotiating ask prices up or down based on your analysis.

Some additional tips for an effective rent comp analysis:

•Consider supply and demand. Evaluate current supply of available units combined with local demand for such units and overall vacancy rates for similar property types in the area which can impact potential rent ranges.

•Check recent rent growth trends. Determine typical increases in rent prices for comparable unit types over the past 12-24 months to estimate potential future increases if renting at the higher end of current ranges. Ensure asked prices will allow for stable increases if desired.

•Factor in premiums and discounts. Consider any premiums or discounts that might apply to the specific deal property like for water views, storage spaces, garage spaces or other desirable features in the analysis. Premiums/discounts can impact fair ranges.

•Reevaluate over time. Rent ranges and competitiveness can change over weeks and months. Reevaluate comps and the target deal property price before finalizing terms or closing on a deal anytime ranges seem significantly off. Staying up to date with the market is key.

•Negotiate the best deal. With a data-driven rent comp analysis evaluating both asking rents and recently signed deals, negotiate from a position of knowledge. Request adjustments to prices and terms as needed to secure the strongest possible returns on investment based on current market conditions.

In summary, running a comprehensive and data-driven rent comp analysis should always be a priority before acquiring any rental investment property. By defining key property details, finding truly comparable local comps, determining asking and signed rent ranges for comp units, analyzing reasonableness of ask prices for the deal property, and reevaluating over time, you can make an informed case for adjustment at the negotiation table. Rent comps give you the leverage and confidence needed to get the best possible deal, which sets up the investment for maximum success and strong returns. Properly evaluating rents through comps is a fundamental skill for any serious real estate investor. With consistent practice, conducting a powerful rent analysis for any potential deal becomes second nature.

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