Strategies to Determine Fair Rental Rates for an Investment Property

 

Fair Rental Rates pic

Fair Rental Rates
Image: investopedia.com

Jason Cohen of Jason Cohen Pittsburgh has his headquarters in Pittsburgh and has acquired multiple real estate investments in less than a decade’s time. An expert on real estate strategies, Mr. Cohen currently serves as the principal of Jason Cohen Pittsburgh, which provides expertise in a broad area of real estate investments that range from evaluating the potential profitability of a property to setting fair rental prices.

When setting rental prices for an investment property, fair rental prices should be listed to encourage long-term renters and avoid the cost of turnover. The use of comps is one strategy often used to determine fair rental prices.

A comp, also known as comparables or comparable sales, is an analysis of recent, nearby sales or rentals gathered to valuate real estate property. Individuals who look at comps are implementing a sales comparison approach (SCA). When identifying properties with this approach, they should possess similar qualities such as square footage and the number of bedrooms and bathrooms. This approach allows rental prices to be set competitively with other landlords and also attract tenants.

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Be a Landlord or Hire a Property Management Company: What to Do with an Investment Property

So, you have an investment property. You’ve done the research. You calculated your return on investment. You’ve gone through all the fun of the loan process. You’ve met with banks and financed the real estate, or you paid in cash. You’ve done all the steps in which you’d wear a suit.

Now you have this house. Say it has several bedrooms. It’s in the city limits, in an in-demand neighborhood composed mostly of rental units — the part of town where people sacrifice spacious living quarters for proximity to shopping and nightlife.

At Jason Cohen Pittsburgh, we’d say that this investment property is probably best used as a multifamily rental. Sure, dividing the home into several units will cost more upfront, but you’ll earn more in monthly rent payments from multiple tenants than a single family. However, six kitchens can require more maintenance than one. The more stuff you put into your investment property, the more that can go wrong. Is this too much for you to handle? Can you afford to spend the time fielding calls from tenants when there’s a plumbing backup? Can you fix the pipes yourself? If not, do you know who to call to do so? Can you drop everything and get to the property in time to fix the issue and keep your tenants satisfied?

investment property

Every property owner has a different situation. Some, like Jason Cohen Pittsburgh, are full-time investors. To others, an investment property is a side income source. Ask yourself: Do you have the time, knowledge, and resources to be a landlord? Or should you outsource the day-to-day maintenance of your investment property to a management company?

Time: Do you have time in your schedule to be called away from your other obligations to maintain your investment property? Is your rental property close to your home or work? Do you have several rental units? If you have other obligations, it may be a good idea to hire a property management company. Too much can go wrong at an investment property and it may be difficult to anticipate.

Of course, it’s a good idea to troubleshoot by fixing the potential problems with an investment property before putting the rental units on the market. You’ve already thoroughly researched and minimized risk when investing in the property.

Even if you’ve done as much preventative maintenance as possible and your investment property is pristine — the pipes and ducts are clear, the appliances are brand new, the windows are sturdy — there is always the human factor. Your tenants are people and, as the saying goes, even “the best laid plans of mice and men oft go astray.” Things will break. Do you have time to fix them?

Knowledge: Is your primary career and skill set related to your investment? Are you a master plumber or electrician? Or are you just a dude with an investment property? Think about the quality of repairs that you’d be able to make. When it comes to investment properties, minimizing guesswork is a great way to minimize risk. You don’t want to be asking yourself where to put the blue wire when fixing an electrical issue. A landlord is never expected to be a master at everything involved in the home, so it is important to have a network of people who are. If you have standing relationships with general handymen or expert maintenance professionals, you could easily field phone calls from tenants and outsource the hands-dirtying work to these contractors. If you have not forged these relationships, it may be a better idea to hire a property management company that has.

Resources: Whichever direction you choose to go in with your investment property, make sure that you’ve budgeted accordingly. Give yourself an hourly rate. Estimate how much time you’d have to spend dealing with tenants, collecting rent, and making repairs. Is it more cost-effective to outsource those duties to an external vendor even if you have to give them 10% of the monthly rental fees? How much would this investment property cut into the time you’ve already budgeted for other things? And would the quality of your repairs lead to subsequent repairs? Would you simply feel more comfortable having others perform these tasks?

Know your capabilities. Be aware of your limitations in terms of time, money, and expertise when deciding how to manage your investment property. At Jason Cohen Pittsburgh, we urge you to approach management with the same cautious rationale that you used when researching the investment property in the first place.

Then decide if you want to do it yourself or hire a property management company.