Rental Comps

Posted on November 2, 2006 - Filed Under Business |

When first setting the rent for the second house, I really had no idea where to begin.  Several websites were consulted, including westsiderentals.com and craigslist.org.  Rentals, comparable to mine, were found and then I set the price.

This seemed to work out well for me.  I got the rental price I was asking for.

Now both houses are up on the market.  The front house is obviously going to be the money maker of the two.  It is larger and nicer.  While I would like to charge $5,000 a month for it I know I can’t. 

Into research mode I went.  Three bedrooms houses, a few one bedroom houses were in my immediate area.  Other considerations in price had to be made.  This includes (1) starting my next project and (2) amount of negative cash-flow.  The more I charge in rent, the more I can borrow to move to my next project.  Also, the houses will be that much closer to break-even. 

With all that in mind, I extrapolated my rent price.  I admit I’m closer to the higher end of the rent range.  But whatever the market will bear, right?

Just out of curiosity, my search was expanded to include several other beach cities.  There are a lot of houses for rent in Long Beach.  What shocked me was the prices some were asking.  Within a block or two from the beach, the rents were two to three hundred less than mine.

Not all the houses were priced this way: only about twenty percent of them.  The other rentals seem to be in line with what I’m asking.  From an investing standpoint, I’m forced to wonder if these people realize just how much money they are giving away every single month.  Over the years, it adds up to be quite a bit.

I’ve learned there are two schools of thought regarding landlords.  The first:  Keep rents low so the tenants stay longterm.  Raise rents only when necessary.  The second:  charge market rate but have turn over every few years.  Turnover is when you get your large rental increases.

I may have to add a third category: those that are clueless.

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