How do I Determine the Fair Market Rent for My House?
At some point in your life you may decide that purchasing a home as
an investment property is a wise decision, or you may want to rent
your current residence rather than selling it. Both scenarios can be
potentially lucrative, if you lease the property for the appropriate
amount. The question you may be asking yourself is, "How do I
determine the fair market rent for my house?" This is an excellent
question. In fact, before you decide to lease your property, you
should find out what the fair market rent value is. Researching this
information prior to any decisions will help you discover, if renting
is the right option for you.
There are several ways you can obtain this information. If you are
considering hiring a
property management company to handle all operations and
maintenance of the property, they can provide you with fair market
value rents in your area. Some individuals prefer to do the research
themselves first, regardless of the eventual outcome. Doing your own
analysis makes excellent sense. Even if you decide to hand the
day-to-day operations over to a property management company, having
this information at your disposal will ensure that the home is being
leased for a reasonable amount. If you haven't put the effort into the
research, you may find out that the management company is over or
undercharging your tenants. Either scenario will have a negative
effect on your bottom line. If the amount is too low, then you are
cheating yourself out of potential profits. On the other hand, if the
leased amount is too high, you may discover that the home is vacant
for long periods of time, or worse not occupied at all. If you depend
on the incoming funds to help with mortgage payments, you may find
yourself in a very tight squeeze.
So where can you go to find out the fair market rent for a home on
your own? There are a few ways to locate this information. You will
need to do some research and homework, so be prepared to spend a
little time on this project. This doesn't mean you will be spending
hours at your computer or pouring over volumes of documentation. You
can easily accomplish this task in less than a day. It may only take
you very little time at all, if the property is located in a
metropolitan area.
The Internet is the most convenient and accessible way to locate the
fair market rent for your house. There are several publications
available that will provide a generic idea of rental rates in your
area. A great place to start is the Department of Housing and Urban
Development or HUD. Their website
www.hud.gov contains information on
Fair Market Rents for the 40th and 50th percentiles. What does this
mean? Well, it is basically the rental dollar amount that 40% (or 50%)
of the rents are below. Most areas will use the 40% mark, while larger
metropolitan areas will fall into the 50% arena. There are other
websites on the Internet that allow you to type in a city or county
and receive basic rental rates for that region. This, of course, is
very generic information, but it will give you a broad idea of where
rents in your area stand.
It is important to remember that fair market rents will vary depending
on the location of the property. Different neighborhoods demand higher
or lower rates. As they say in real estate, "location is everything".
If your property is located in a lower income area of town, you will
probably be fine using the HUD Fair Market Rent information. However,
if the home is located in an upper scale neighborhood, then the HUD
information will probably not work for you. So, where do you go from
here?
The answer is simple really. The Internet has opened up a wealth of
information that is accessible to anyone. If you want to find out what
homes are renting for in your area, there are numerous websites that
list rental properties online. You can locate dozens of these sites by
doing a simple search through your favorite search engine. Choose at
least four or five sites from the expansive list available. Then run a
search for homes in your city or neighborhood. The best results will
be achieved by using the sites that offer advanced searches and break
down listings by neighborhood or zip code. The more detailed the
search, the more reliable the information. Once you see what lease
rates are for similar homes in the neighborhood, you will have an
excellent gauge of what the fair market rent on your property should
be. Make sure you search several sites, before making any decisions.
It is also a good idea to take the time to make a few phone calls.
Don't be afraid to use your acting skills, when you are doing your
research. Select a few homes that closely resemble your property from
the best websites, and contact the owner or management company. Here
are a few things to ask to make sure the home's rental rate isn't
priced too high for the location. Begin by asking, if the property is
still available. Obviously, if it isn't, then there is a good chance
that the rent is set at a fair market rate. If it has already been
leased, find out how long it was available. If it was only available
for a very short time, the owner may be
under estimating the rental
rate. However, if it was on the market for, say 6 months, then the
price may be too high. If the property is still available, try to get
more information on the amenities. This will let you know how closely
it resembles your property. In addition, ask the same questions
regarding the length of time the home has been on the market. Once
again the same rules would apply. After you have completed your
research, you will be able to set the fair market rent value of your
property with confidence.