How to Find Average Rent in Area of Your Choice

Are you preparing for 2023 and wondering how to find average rental rate efficiently? Read on because we’ve covered everything in detail.

Table of Contents

1. What Is Fair Market Rent?
2. Why Should Landlords Find Average Rent in Area?
3. What Factors Influence the Fair Rental Value?
4. How Can You Find Average Rent in Area?

As a real estate investor seeking to earn a positive cash flow from their investment property, you must first find average rent in the area of your choice. Why is this important?

Setting an unreasonably high rental rate means you’ll push away many potential tenants, and your rental property will stay vacant. On the other hand, a lower-than-average rate means you won’t make enough to settle your monthly bills and remain with a decent profit. You don’t want to leave money on the table.

As you can see, a good rental rate can be the difference between your property staying vacant and attracting the tenants you desire so that you can rent out the property fast.

Savvy real estate investors understand that the rental rate should be based on fair market rent. It’s essential to know how to determine the fair market rent. It applies whether you’re a beginner looking to buy your first rental property or an experienced investor who wants to diversify your portfolio.

In today’s article, we look at what fair market rent is and how to find average rent in an area.

What Is Fair Market Rent?

Fair market rent (FMR) refers to the amount of rent a house is likely to generate monthly. In short, it’s the amount of money you can expect to make from your rental property each month. The amount is based on how much tenants pay for the same property type within the same neighborhood. As such, fair market rents are determined by property type, size, and location.

For example, the fair market rent for a two-bedroom house in a rural area can be $800. The fair market rent for the same unit can be $1,200 in a more affluent metropolitan district.

Identifying the fair market rent for your property lowers the risk of vacancy and increases the number of individuals lining up to rent your property. The more applicants you attract, the more likely you will find good renters. Choosing the right rent and carefully screening your renters are two of the most effective ways to maximize your revenue as a landlord.

Now, FMRs are determined annually by the US Department of Housing and Urban Development (HUD). It’s an excellent place to start your research since they look at rental rates across the country. 

However, you also want to get a localized insight to understand whether the rates in your area are the same or differ from the HUD’s fair market rent projections.

Why Should Landlords Find Average Rent in Area?

When looking to buy a new rental property, knowing the market rent can help you determine whether the property will generate a consistent income for you. In addition, comparable property rental rates will give you a good idea of how much you can charge your tenants.

Moreover, it will assist you in calculating your cash flow and determining whether you will receive a favorable return on your investment. It can also help you make a long-term forecast, giving you a better idea of how long it may take you to recoup your initial investment.

Here are some of the situations when it’s essential for a landlord to find average rent in an area:

1. When Listing a Vacant Rental Property

As we’ve seen, setting a realistic rental rate for your investment property can make or break your rental business. Looking at the fair rental value beforehand is essential since it allows you to strike a balance between maximizing your rental income and ensuring that your property is occupied all year round by long-term tenants. 

Look at it this way—if you charge a rate higher than the market rent, your property will experience extended vacancy periods. It means you’ll need to settle monthly bills, such as mortgage payments, out of your own pocket. 

Never charge higher than the fair market rent unless your rental comes with a feature that makes it stand out from other rental comparables within the same area. Even in this case, you may still find yourself needing to convince your tenants why they should pay higher.

On the other hand, setting a lower rate than the market rent may get you a tenant quite quickly. However, it means you’re leaving money on the table every month. If your rental rate is too low, it’ll be difficult for you to make a decent profit after settling monthly bills and other expenses.

Understanding the FMR helps how to determine whether the investment is worth pursuing. Since looking at comparable properties’ rental prices gives you an idea of how much to charge for your own rent, you can then calculate the monthly cash flow to expect. You can also make long-term projections to determine how long it’ll take you to break even.

2. When Revising Your Rent

While it’s vital to find the average rent in an area before listing to rent, it’s also essential when you’re already a landlord. Remember that your own expenses, such as property taxes and employee salaries, keep changing every year. You need to set a realistic rate that will give you a positive cash flow.

Determining the FMR when revising your rent lets you decide whether to increase the rent (if you’re charging too low) or decrease it (if you’re charging too high). This way, you can maximize your monthly rental income and occupancy rates.

3. When Selecting an Investment Property to Buy

Making your residence into an investment property can also be financially risky. You may need to spend money on repairs before you can lease out the property. Property owners are eligible for numerous tax breaks. Still, it is best to budget for expenditures, such as taxes, maintenance costs, and homeowners insurance.

Furthermore, if your tenant unexpectedly moves out and it takes a while to find a replacement, you will be responsible for paying the mortgage.

Additionally, determining the fair market rent before you buy a rental property is essential since it helps you calculate the potential cash flow and return on investment. The FMR should exceed the monthly business operating costs. If not, the investment will not be profitable.

Related: The Best States for Landlords in 2022

4. When Renting to Section 8 Tenants

The US Department of HUD determines the fair rental value each year. Doing so enables it to set the housing voucher amounts to issue to low-income individuals through the Section 8 Housing program. If you’ll be renting to Section 8 tenants, it’s essential to know the FMR.

To lease to Section 8 tenants, you must first request a permit from your regional Public Housing Authority and plan an inspection of your facility. Once accepted, you may begin contacting tenants who intend to use accommodation vouchers to pay their rent.

What Factors Influence the Fair Rental Value?

It’s important to understand that the average rent in the area of your choice can vary widely from the national average. Similarly, the rent can also vary considerably even in the same metropolis.

Here are some of the core factors that affect the FMR of any rental property:

• Location: You can charge a higher rental rate if your property is located within a desirable neighborhood. The same can’t be said about a property in a less desirable neighborhood.
• Amenities: Your rental rate can be differentiated from other comparables within the same neighborhood by upgrades, open floor plans, and outdoor spaces. They can determine whether to raise your FMR or lower it. You can charge more if your property includes a gym, pool, or air-conditioning.
• Property type: Your FMR can vary depending on whether your property is an apartment, duplex, single-family home, or multi-family property.
• Space: It goes without saying that more square footage than other properties within the neighborhood can lead to higher prices.
• Bathrooms and Bedrooms: If your property comes with more bedrooms and bathrooms than comparable properties within the same area, the more likely you’ll charge a higher rent.
• Property age and condition: Newer properties that are well-kept are likely to attract a higher rental rate than older properties.

As you can already tell, the more desirable your property is in comparison to other comparable properties within the same neighborhood, the higher rental rates you can command.

How Can You Find Average Rent in Area?

The fair market rent set by the HUD can be a good place to start your research. However, be wary when using such a resource. You may not get an accurate projection since the conditions in your particular neighborhood or property may be different. So, what’s the best way how to find out the average rent in an area?

Finding an accurate, fair market rate may need you to get a localized view. As such, the best way to find fair market rent is by checking what other landlords in your neighborhood are charging for the same property type. Find at least three comparable properties, see what their rental rates are, then calculate the average rental rate.

When carrying out the rental market analysis, don’t forget to consider the factors we’ve listed above, such as location, amenities, property type, and property size. The number of bedrooms and square footage should also be the same. 

If possible, try finding units with the same amenities too. The more comparable the rental comps are to your investment property, the more accurate your estimates will be.

If the comparables are occupied for long periods and see lower vacancy turnover, it’s likely because the rental rates are closer to the FMR. Primarily, determining the occupancy rate will also help you know whether the rent is higher than the FMR, lower, or just right. Higher vacancy rates can mean that the rental prices are high, too.

Tips on How to Find the Average Rental Rate in Your Desired Area

With the above being said, here are some suggestions on how to find the average rent in an area:

• Check with property managers who handle compatible properties.
• Talk to members of your area’s landlord association.
• Consult real estate agents.
• Look at rental advertisements on classified advertisement sites.
• Check your local newspaper, both online and in print.

Also, remember that if your property includes some unique features, it’s justifiable to set the rental rate slightly higher than the FMR.

The easiest way is to employ an online tool. Dialing numbers listed on “for rent” signposts may be a good way to find out what the market rate is. But, as a busy landlord, you can choose to use technology to your advantage.

The calculator will assist you in estimating your cash flow based on expenditures such as mortgage payments, upkeep, and even vacancies. If you own a new house or are unable to regularly monitor certain costs, such a tool can provide recommended values for your property.

Related: The Best Comparative Market Analysis Tools for Beginner Investors

Using Online Tools to Find Average Rent in Area

Now, you may notice that talking to other landlords and property managers may consume a lot of your time. Don’t forget that some may not be willing to share rent information with you. But by using online tools, you get what you’re looking for in a matter of minutes by just clicking a button.

So, which is the best online resource to check the average rent in the area of your choice?

While there are many online tools and resources you can use for such a purpose, Mashvisor’s rent estimate calculator stands out. The calculator uses predictive analytics, big data, and machine-learning algorithms to estimate rental income in a matter of minutes.

Aside from saving you time and energy, one great advantage of the said tool is its accuracy. We pull our data from reliable resources, such as Airbnb, Zillow, Redfin, and the MLS, then apply our own AI-powered investment analysis to provide you with accurate rent estimates. 

Here’s some of the essential information that you can access through Mashvisor’s real estate investment software and see how to find an average rent.

Neighborhood Estimates

First, you need Mashvisor to help you find the average rental income within your neighborhood. You can do it for any housing market in the US since Mashvsior offers comprehensive market data for any area. All you need to do is enter the name of the neighborhood where your investment property is located before carrying out market research.

To access rental data and analytics for your neighborhood, go to the search results page and click on the neighborhood name. You’ll be taken to the Neighborhood Analytics page. From the Summary bar, you can see all the vital metrics you need to assess the neighborhood, including the average rental income for both long term and short term rental strategies.

Determining rent estimates by location is important since you get an estimate of how much rent landlords in your area are charging. You can also use the rent estimate to compare the performance of rental properties in your neighborhood with that of other neighborhoods.

In addition, neighborhood estimates give you access to historical rental income for long term and short term rental strategies. You will see how much landlords in the neighborhood have been charging and how these figures have evolved in, say, the last 12 months. 

You can use the information to find a neighborhood where the rental rates are going up rather than down.

Want to try out the Neighborhood Analytics page and see what it can do for you? Start by clicking here.

Investment Property Estimates

The Mashvisor Investment Property Calculator gives you monthly rent estimates for every investment property listed on the platform. Other than that, you can also get estimates for off-market properties whose addresses you enter.

For each property, you’ll get accurate estimates for the following:

• Long term rental income
• Short term rental income
• One-time costs and monthly expenses
• Cash flow
• Cash on cash return
• Cap rate
• 10-year investment payback balance

To make a lucrative real estate investment, you must first choose the right location, buy the right property, and then choose the best rental strategy. Mashvisor’s real estate investment calculator can assist you in achieving all of your objectives.

The calculator allows you to locate and assess both neighborhoods and rental properties. All you need to do is insert some basic data based on your investment choice, and the tool will handle the rest.

The calculator is fast and precise because it employs trustworthy predictive analytics. It will save you a significant amount of time and effort when analyzing prospective real estate transactions.

Rental Comps

To prevent overcharging for a property, real estate investors should look into recent sales of comparable properties in the area (rental comps). When estimating rent, investors should consider the rates charged by similar rental listings in the neighborhood.

The rent estimator on Mashvisor also gives you access to rental comps for your investment property. You can find similar properties for both long term and short term rentals. 

To find a list of these comps and all their relevant data, click the “Rental Comps & Insights” tab. Here, you can see how similar the rental comps are to the one you’re analyzing (in percentage), their addresses, and the distance from the property of your interest.

What is more, Mashvisor’s calculator makes it easier to locate real estate comps. It will provide you with a list of comparables, as well as additional information to assist in your own comparative study.

Related: Rental Comps: What Are They and Where to Find Them?

Use Mashvisor Tools to Find Average Rent in Area and More

If you decide to rent out your home, you cannot charge rent based exclusively on your mortgage payments. 

Choosing a rental rate based on the overall cost of converting your residence into an investment property, as well as other rent prices in your area, can help you make a good return. It will also help you find tenants quickly.

That’s also possibly the most important aspect of becoming a landlord. In fact, it may determine the success of your property in the near future. When it comes to how to find the average rental rate, it is advisable that you use an online tool such as Mashvisor.

Mashvisor stands out from other competitor online tools. It’s the best answer to how to find out the average rent in an area. Aside from providing rental rate estimates, you can carry out a comprehensive rental property analysis on the platform. Using the rent estimate calculator, you will access a lot of useful data, including:

• Cash on cash return
• Cap rate
• Cash flow
• Short term rental occupancy rate

Using Mashvisor’s calculator, you can determine whether your rental estimate will yield a positive cash flow and a good return on investment. Mashvisor tools will help you determine the right rental rates in a matter of minutes, whether you want to be a landlord or a short term rental host.

To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.