Rental Market Analysis (RMA) is a must for property managers. It helps you gain insights into the market and prepare for the current as well as future opportunities and challenges. Without these valuable insights, your life as a property manager will be an uphill battle.
How does RMS work?
To do a successful RMA, you must know how it works. RMS helps you find out the rental potential of a particular property or a targeted area. Make sure you choose the best places to buy a rental property. RMS approach is perfect for vacation rentals or long-term rentals.
Property managers, as well as real estate investors, use a tool for rental market analysis. Investors compute the average rent of properties in the target location. Then, they weigh it against the average monthly expenses of rental properties in that particular location. Positive results indicate that the rental investment in that location will earn you positive cash flow on a monthly basis.
Once you understand the potential of a neighbouring property or area, calculate their at least three comps and monthly rents. Then, segregate the monthly rent of each comp by their cost per square feet. It will yield you the average rent for the location. Finally, calculate the monthly cost of the property to determine your expected monthly cash flow.
5 steps of rental market analysis
1. Evaluate the neighbourhood
Check the following important factors when evaluating your neighbourhood:
- Access to public places
- Nearby amenities, parks, cultural venues
- Easy access to restaurants
- Google school ratings
- Excellent walkability score
Things to avoid:
- Multiple vacant properties in one area
- Noisy area such as factories, airport, railway station near the property
- Streets in poor conditions
2. Identify comparable properties in the target area
Things to consider in this regard:
- Number of bedrooms and bathrooms
- Lot size
- Amenities and condition
- Proximities to each other
- Square feet
3. Calculate the cost per square foot of comps
The square footage is how much living space there is inside the property. By understanding the comps’ square footage, it becomes very easy to calculate the price per square foot. The price per square foot varies depending on the country or area.
4. Manage the rental price
If you’ve chosen the comps rightly, the average cost/square foot will be in proximity with what you’ll charge for the rental property. Sometimes, you may have to adjust comps according to the differences in amenities.
5. Determine the cost of properties for sale
Next, know about the properties available for sale and how much they’ll cost you. Find out whether there are enough properties available at a low price that will help you meet your cash flow target considering the average rents calculated above?
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