How do you know what to charge in a market where rent can vary by hundreds of dollars for similar properties? Home rental comps might have the answer.
Setting the right rental price can be imperative to the bottom line of real estate investors.
Accurate rental comps can help strike the right balance—preventing extended vacancies caused by overpricing and avoiding lost income from underpricing.
As of the 2020 Census, renter-occupied housing units comprised about 31.1% of the total occupied housing units in the United States. By the first quarter of 2024, that number had slightly decreased to 30.8%.
With such a significant portion of the population renting, accurate rental comps ensure landlords stay competitive while maximizing returns.
In this article, we’ll explore what home rental comps are, how to find them, and how to use them effectively.
Start your application with Park Place FinanceWhat are home rental comps?
Home rental comparables, called “comps,” are data from similar properties regarding location, size, and amenities.
Carefully analyzing recently rented or leased properties in the same area can help determine a property’s fair market rent using rental comps.
For investors, property managers, and landlords, rental comps are an essential tool for:
- Figuring out a competitive rental price
- Estimating your potential return on investment (ROI)
- Identifying market trends
- Better understanding of what renters want to rent and how much they’re willing to pay for it
- Evaluating whether a rental property is a smart investment
Where to find rental comps
Finding accurate rental comps requires using multiple sources. The following are some of the best places to gather reliable rental comparison data.
Local real estate agents
Local real estate agents can access rental data that’s hard to find on your own.
They also know the local market inside and out, so their insights on pricing trends and tenant demand can be invaluable when setting rental rates.
Online real estate platforms
Websites like Zillow and Realtor.com provide rental listings, including details on price, location, and amenities. These platforms allow investors to filter search results to find similar properties.
MLS (Multiple Listing Service)
While the MLS is primarily used for home sales, some versions include rental listings.
Real estate professionals can pull detailed rental data to compare properties in a specific market.
Local classifieds and rental websites
Websites like Craigslist, Trulia, and HotPads list rental properties, providing an additional source of comp data. These platforms help landlords see what other property owners charge in a given area.
Neighborhood research
Driving through neighborhoods and noting “For Rent” signs can provide real-time rental data. Contacting landlords directly can also offer insights into rental pricing and tenant demand.
Property management companies
Professional property managers track rental rates, occupancy trends, and market fluctuations. Many firms provide rental analysis services to landlords and investors.
How to use rental comps
Landlords must analyze several important factors influencing rental value to use home rental comps effectively. The most important considerations include the following.
Location
To get accurate rental comps, looking at properties in the same neighborhood or nearby is best. Rental prices can vary significantly from one area to another, even within the same city.
Size and layout
To get the most accurate rental comps, look for properties with similar physical characteristics, such as square footage and the same number and type of bathrooms—such as half-baths, three-piece, or four-piece bathrooms.
Even in the same neighborhood, rental rates for a one-bedroom apartment will differ from those for a three-bedroom house.
Amenities
Properties with desirable features, such as in-unit laundry or parking, can attract tenants who are comfortable with higher rental prices. To compare prices accurately, ensure you use rental comps with similar amenities.
Age and condition
Newer or recently renovated properties tend to command higher rents than older homes with outdated features. A well-maintained property with modern appliances and fresh paint will generally rent for more than a similar property in poor condition.
Recent rental activity
Rental comps should be based on properties leased recently—ideally within the last three to six months. The rental market can fluctuate, so using outdated comps may lead to incorrect pricing decisions.
How do rental comps impact property valuation?
Rental comps are essential for determining a property’s worth, especially for investment properties. Lenders, appraisers, and investors use them to assess the potential rental income a property might generate.
If rental comps show that a property can generate substantial income compared to its purchase price, it’s a valuable investment.
On the other hand, if the income looks lower than expected, it might be a sign to rethink pricing or even the investment itself.
For landlords hoping to refinance or sell, solid rental comps can help support a higher appraisal, which could lead to better loan terms or a higher sale price.
How often should rental comps be updated?
Rental comps should be updated regularly as market conditions change due to factors such as:
- Economic trends affecting rental demand
- Seasonal fluctuations (e.g., peak rental periods in summer)
- Changes in neighborhood development or infrastructure
- Shifts in local rental laws or regulations
Most experts recommend reviewing rental comps at least every six months. Landlords may need to update their rental price strategy quarterly to stay competitive in fast-moving markets.
How neighborhoods influence rental comps
Rental comps can vary significantly between neighborhoods, even within the same city.
Several factors can cause these differences:
- Proximity to job hubs and universities: Properties near major employers or colleges usually have higher rents due to demand from students and professionals.
- Access to public transportation and walkability: Areas with good transit options and plenty of nearby restaurants or entertainment often attract tenants willing to pay more.
- Crime rates and school quality: Safe neighborhoods with strong school districts tend to have higher rental prices.
- Development and gentrification: Neighborhoods being revitalized can see rising rents, while older areas with declining infrastructure might struggle to keep prices up.
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