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Rental Market Analysis – How To Conduct It Successfully?

 analysis

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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Topics: Insider, Property Management Advice

Rafael Niesten

Written by Rafael Niesten

In his early 20s, Perth local Rafael Niesten, won a scholarship to study in Canada, with that came the opportunity to volunteer at a local radio station. That spawned his entrepreneurial streak, returning to Perth in 2001 he set up community radio Groove FM. More by luck than design, they became successful, too successful as they took a significant chunk of the Perth Market. This sent up the red flag with his commercial competitors who saw to it that he came before the Australian Broadcasting Authority and on technicalities such as the number of volunteers he was forced to move on. He received the citizen of the year award for Western Australia (youth) and was a finalist in the Australian of the year awards (Youth). Falling on his sword he turned to running small and large scale events, all the while buying, renovating and selling properties. Buying and selling land and renovated houses provided a grounding in the property industry. He founded a cloud based medical grade voice recognition company, followed by co founding the first true cloud application for private practice in the health sector. He successfully exited these ventures at the end of 2016 and began building Bricks+Agent.

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