Fair market rent is essentially the amount of money that a given property, in a specific neighborhood, with similar amenities and adequate marketing, in today’s real estate market could receive as rent. The best way to approximate Fair Market Rent is to research recently completed leases of similar homes in similar neighborhoods. A comparable rent survey is a good place to start, but no two properties are exactly the same so the other important element in the analysis is local experience. For example: “How much more rent can I get if I install a new kitchen?” It depends.
Accurately pricing of your rental property is one of the keys to being a successful real estate investor. Price too low and you’ll be leaving money on the table, price too high and it may take weeks or months to find a qualified tenant, and time is money. Each day your rental sits empty you’ll be covering the costs of property taxes, insurance, mortgage, utilities and maintenance. For example: If your fixed costs are $3,000/month, each day that passes without a tenant costs you $100. Let’s say your rental is priced at $3,800/month and fair market rent is $3,500/month. If it takes 60 days to find and move-in a qualified tenant who is willing to pay $3,800/month, and you could have leased it immediately for $3,500 you lost money; $3,500 x 12 months = $42,000 vs. $3,800 x 10 months = $38,000. Think you’re going to make it up over time, maybe, the average US tenant stays 27.5 months but the average California tenant only stays 19.8 months.
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