A question I get quite often, mainly because I work with buyers and sellers of investment properties, including homes and multifamily, is: what are the rents in a particular area. 

A buyer needs to know this to establish the value of the property being considered: to evaluate the demand and supply in a particular neighborhood: and the gauge the ability to pursue other techniques to increase his/her return, things like repositioning.

A manager -whether an owner manager or a hired manager- needs to know the market to keep vacancy rates low but also to maximize the return and track any trends.

When a property may go up for sale or an owner needs to evaluate the investment, he/she will also need to know -that is of course if they don’t already know- what the rental market is like, what are the trends, and what affect will they have on the price and in who’s favor will the negotiations tip. In each stage the access to reliable rental data is vital.

But how to you get that data and how do you ensure it’s the best data?

There are many ways to get rental data.  Some people assume that looking through a paper is good or craigslist: others ask a Realtor: and yet others do a rental survey.

The two former data gathering sources can be used as an overall gauge but this is never as accurate as the latter: the rental survey, and it is this that I want to focus on. 

The Rental Survey.

A rental survey a concise study of the rental market -whether single family homes or multifamily apartment - which involves more then a surface view: it involves getting into the details by getting a first hand look at your competition. To get the most accurate rental data you should do as many of the following activities as possible.

1.  Drive the neighborhood and see how many signs are up? Are they individual owners or management companies.  If you see signs over and over the same location it could mean multiple things but higher vacancies are one of them: this could also signify a very transient neighborhood and tenants that move often lower your income and increase risk.

2.  View the apartments or homes if possible.  It’s not the rates themselves that are singularly important.  What is a tenant getting for the rent.  Which utilities are included or not and who is responsible for what.  In addition the condition of the property is very important: flooring, paint, state of the kitchen and cleanliness are very important and have a large affect on the rental rate.

3.  Speak with the owners or management companies to see how long the property has been available  and are there any concessions offered.  Each is a good source of information but you need to vet it as well as you may not get the whole story.

4.  Talk to a management company of Realtor who does management in the area.  Some Realtors do management and some -though few- do a rental survey themselves.  You may want to talk to someone like that but be courteous about requesting free information if you’re not a client.  It takes a lot of work to do a proper survey.

5.  Talk to fellow investors who do work in the area.  Some real estate investment clubs and organizations have enough members that you’re bound to find someone who is in the know.  In Greater Phoenix there are several clubs but AZREIA is the larges and the meeting are a great source first hand information.

6.  Then compare to active listing in the various sources available to see any discrepancies between what is being offered and what is actually happening; You can also compare what you have found to a general survey of rental rates in Phoenix, like this one to see if there are any trends.

Just as you would want to know where you customers will come from, how much they earn, and spend before you open any sort of business you want to know the same for an investment property because this is where your cash flow will come from and you want to know the quality and value of that cash flow. 

Even small discrepancies can affect values greatly.  Over time an owner can lose lots of income due to improper rental pricing or loss of value when selling.  A buyer can be in a much stronger negotiating position if he/she knows the strength of the income and any market pressures on it.

A rental survey should be part of any due diligence for a buyer and seller and a regular activity for managers/owners of a property. 

Part of our service for our clients is a rental survey when buying or selling an investment property.

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