Home Buying in 37206>Question Details

Lafayette La…, Home Seller in Nashville, TN

how to determine the rental price for investment property?

Asked by Lafayette Lafayette, Nashville, TN Sat Dec 1, 2012

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Rents could have changed from when the current owner first rented it. Rents could have gone up, or could have gone down. I am always glad to run a report from MLS on rentals and send to a client. This is one indicator of competing rates. Another way is to go to a rental website where owners list property and see rates on properties 'for rent..' My philosophy has always been to rent for a little below market price, to good clients, who hopefully will realize that they have a good deal and stay a while. There is nothing gained to rent for $50 over market, then have the renter move out in 3 months, and have to clean, maybe paint, and have the unit sit empty for a month or more while finding another tenant.

Sarah Rummage
Benchmark Realty, LLC
Direct: 615.516.5233
Office: 615.371.1544
1 vote Thank Flag Link Sat Dec 1, 2012
Hi Lafayette:
Great question. It looks like your answers are both geared toward renting an investment property and/or buying an investment property.

Our answer is for determining the optimal monthly rent amount. If you have a loan on the property as opposed to owning it free and clear there can be a big difference in what you charge. We know people who charge less than market rent for their rentals, and they can because they don't have a loan payment. However, those who have loans must often meet a lender's requirement of a 1.25:1 (one point two five to one) DSR or debt service ratio. This means if your debt service (principal & interest amount due each month on the loan) equals $1000, you must collect $1250 or 25% more than the debt service each month. Some lenders only require a 1.2:1 ratio, (20%.)

In order to meet these lender requirements - take your principal and interest payment amount and multiply it by 1.25.

If the property is to cash flow - be sure to calculate a monthly amount for property taxes, homeowner's insurance, vacancies and a maintenance allowances. Otherwise you may wind up breaking even, but not actually making any money.

Hopefully this answers your question. If you were needing to know how to calculate a purchase price for a rental property feel free to contact either of us.

Connie & Sheila
http://www.ConnieandSheila.com (rental site)
http://www.ConnieandSheilaTalk.com (podcast site)
0 votes Thank Flag Link Sat Dec 1, 2012
Rates depend on the market, which each of these agents has alluded to, however if you are attempting to run numbers and back into what price you should pay for an investment property, I strongly suggest you buy the brand new book "Hold". You will learn so much! Nothing like buying a piece of investment property and miscalculating the expenses as well as the rents. Real estate is the quickest way to build wealth, as well as one of the most satisfying, if you have the temperment and skill required.

Good luck!

Steve Condurelis
co-founder, Keller Williams Realty, Nashville
0 votes Thank Flag Link Sat Dec 1, 2012
It is not uncommon for a property to have been an investment property for the current / previous owner. If an investor is the Seller, then they are glad to provide past rental information. You can ask the Listing agent for that information.

If you are a Buyer, ask your agent to run a report for current rental prices and the year's rental prices, for similar properties. This will allow you to run numbers ahead of time to see your potential income.

The end of the year is a great time to get a deal done. Many of your expenses for closing are tax deductible.
0 votes Thank Flag Link Sat Dec 1, 2012
A real estate agent can run comparables to help you determine the rental price. When buying an investment property the "rule of thumb" used by my investors is being able to get 1% of the purchase price. For example, a $100,000 purchase should yield at least $1,000 a month.

Stephen Strickhausen
Benchmark Realty
0 votes Thank Flag Link Sat Dec 1, 2012
The best way is to see what rents are being charged for similiar properties. You can look in the classifieds, on craigslist or drive the area and check rent signs. If rate is not on the sign you can call, but be courteous to the landlord and don't take a lot of their time just to find out market rents.
0 votes Thank Flag Link Sat Dec 1, 2012
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