Have you ever thought about buying an income property, but had no idea what you'd be able to get for rent, or were worried whether someone would even want to rent your space?
Maybe you’re new to real estate investing, or you’re buying out of province, or you’re simply buying in an area of town that you aren’t familiar with. Rental income will vary greatly depending on city, neighbourhood, convenience (walkability), amenities, upgrades, and number of bedrooms.
As a rule of thumb, I always try to buy 2+ bedroom units as they garner substantially more rent than 1-bedroom units. I also try to buy in decent or up-and-coming areas, I allow pets (small and large), and I try to have in-suite laundry and parking with all of my units. I know what I look for when I go to rent an apartment, so I try to offer exactly what I would like to rent.
But even if your rental offers all of the above mentioned amenities, it may still be difficult to estimate the rental income you’ll receive once you finally put your apartment up for rent.
The first step you can take when you’ve got a rental unit and want to get an approximate estimation of the rent is to check out Rentometer. Rentometer doesn’t work for all cities or locations because some cities don’t have enough comparable data for the site to make an accurate estimation, but if it does work for your area, it’s a really quick way to estimate potential rent. If I am running quick numbers on a property of interest (see my blogpost on 'running the numbers') I will check Rentometer first, however if I am moving forward with putting an offer on a property, I will then switch my tactics to something a bit more concrete.
Introducing Kijiji, Padmapper, UsedVictoria, or any other local site you would use to find an apartment for rent. Here you can input the parameters of your new rental suite (ie; # bedrooms, # bathrooms, pet friendly, location, appliances, etc.) and find comparable apartments in terms of upgrades, amenities and other offerings, and then make a more accurate estimate of how much your apartment might rent for. I even like to check how many views those ads that are similar to mine get, so that I can garner potential interest in my rental. Another tip to get increased interest in your rental, if you’re able to do it, is to start your leases in August or September. Without fail, and no matter what city I am renting in, I try to line up the beginning of my leases for August 1st or September 1st. Waiting until October to post my rental apartment guarantees much less interest, and thereby much more stress on me!
At this point you’re probably saying, “Alright Chantele, you’re not telling me anything that I didn’t already know”.
You’re right, I did label this post “How to guarantee rental income”, not “How to estimate rental income”. Glad you were paying attention ;)
So, let me show you what I do to guarantee rental income before I even have an accepted offer on a house.
Let’s use an example of a house I saw pop up on my listings the other day.
The house is a 2 -bedroom, 1-bathroom upstairs unit and a 2-bedroom, 1-bathroom downstairs unit, listed for $289,000. It's located in an area of town that I’m not familiar with the rental income, but when I run the numbers on it, I would need about $1,100/month for the downstairs unit to make this a profitable rental. Kijiji tells me I can get anywhere from $800 - $1,200/month for it, but that’s a pretty big range and I wouldn’t bother even putting an offer on the house if the downstairs unit only rented for $800/month.
At $1,200/month however, that’s a different story. Let's take a look.
So how can I figure out if this downstairs unit will rent for $800/month or for $1,200/month? Well the only way to really figure that out is to list it for rent and see what happens.
So that’s exactly what I do.
I start out by screen-capturing some good photos from the listing and then I create a Kijiji/Used Victoria/Padmapper ad based on the information in the listing. Does it have a dishwasher, laundry, private entrance or yard? I take whatever details I have and I include those in the ad. I choose a realistic date that it could be rented for if I bought it (i.e., it’s September 5th today so I could reasonably buy this and rent it out for November 1), choose the price I ideally want to get, then I post the ad and see what happens.
This is the part where you wait. And try to remain patient.
I usually only leave my ad up for a day or two to see what happens. If I get one response in 2 days, then maybe I’ve posted the apartment at too high of a price. If I get 20 responses in 2 days, then perhaps I’ve posted it too low. If I get responses from people that are eager and interested, then I know I’ve got an apartment that will be a winner.
This is how you establish your need. It’s like doing market research for a product before you build it. What is the point in spending all of that time creating something for people that they inevitably don’t want? Why not first establish the want/need for it, then bring it to life. I never want to invest in something that will fail, and so I will go through all of the initial market research to make sure my product (i.e., apartment) is in high demand.
Also, for those of you that are thinking this is awfully mean of me to post an ad for an apartment that I haven’t bought yet and leading people on, I’ll clarify. I am completely transparent and honest with everyone who answers my ads. When they message me with interest, I tell them I am currently in the process of purchasing the house, and that I will keep them up to date as the deal unfolds. No one up to this point has ever had an issue with that answer, and in fact I have previously signed a lease before I had even fully closed on a house. My renters were understanding of the buying process and were happy to wait for the apartment.
One of the biggest lessons I have learned is that being honest with people is ALWAYS the right thing to do. People are constantly more understanding that you think they will be.
Well, that’s a short and sweet post for today. It had everything to do with this past weekend being a long weekend and #RealEstateWednesday creeping up on me faster than I expected. Also spending summer days swimming in waterfalls with this girl :)
Next week Stella and I will be addressing a question from our readers about what spending $1,500/month equates to in a rental property. This is going to be one of my favourite posts because I get to go (virtual) HOUSE HUNTING!