Accurately estimating rent is crucial in real estate investing. To ensure accuracy, we calculate the rent three or four times for each property in evaluation, as outlined below.
First Estimate: Our Proprietary Investor Tool
The Investor Tool (our proprietary software that sifts through thousands of properties on the market to find the few that are good investment properties) provides rent estimates based on recently rented properties, similar to methods used by websites like Zillow, Rentometer, and Redfin.
However, algorithims have limitations. For example, I checked the estimated price and rent for a fire-damaged property (3528 Oberon Lane, North Las Vegas, NV 89032), and the estimates ranged from $1,900 to $2,200 per month. In reality, no one would rent it in its current condition. This shows that software alone can’t account for property conditions.
In summary, no one’s software can provide sufficiently accurate price or rent information because they do not take the current condition or nuances. For example, the Zillow rent estimate for the property indicated below is $2,085/Mo.
I was in this house several years ago. The noise from I-15 was so loud that my client and I had to nearly shout to hear each other. Due to the noise, this property is practically unrentable at anything close to Zillow’s estimated rent.
Second Estimate: Property Manager Opinion
Once we zoom in on a property, we ask for the property manager’s rent estimate, and use that estimate to run our analysis.
A common misconception is assuming that current rents will match recent rents. When renting, you wouldn’t just look at recently rented properties; you’d focus on the best options available now. For instance, if similar properties previously rented for $2,300/month, but one is available now for $2,100/month, you’d choose the lower price. Current market conditions are what matter most.
It’s also important to know the potential rent after renovations. Location plays a key role, as tenants often choose areas based on job access, meaning competition could come from properties far away.
This is why we rely on an expert property manager. She can accurately estimate how much a property will rent after renovations.
Third Estimate: Final Review Before Listing
Market conditions fluctuate as properties enter and leave the market. Just before listing a property, our property manager conducts a final evaluation of the expected rent based on current competition. This third rent assessment ensures our pricing remains competitive and up-to-date.
Summary
While software can provide a rough estimate based on recent rentals, it’s not reliable enough for final decisions. Only a skilled property manager can assess all factors and give an accurate rent estimate after renovations, which is why we reevaluate rent at least three times during our process.
