Inexperienced or new property managers can be driven by enthusiasm and may tend to set very high expectations before understanding their competition. If you want to leapfrog your competition and gain a competitive edge, one of the most effective ways to do it is to run a rental market analysis.
What is a Rental Market Analysis?
A rental market analysis provides crucial data about the current state of a rental market. More so, It gives useful information you can use to set your property management company ahead of the competition. Planning rental property upgrades, establishing rent tiers, and having a good mastery of the marketing strategies enable you to gain valuable insight and prepare for future eventualities. However, to accomplish these things, you need to start with a market analysis.
A significant advantage of using a market analysis is that it allows you to be apprised of current trends. A market analysis also gives you insight into what’s happening in your area, once you’re properly informed you would be able to answer the following questions
- How do I determine the appropriate listing price?
- How do I charge competitively for my rental properties?
- Is my rental rate too high, too low or in line with the market rates?
- What do I need to do to maximize the monetary value on my rental properties?
- How much new construction is planned or ongoing and how will it affect my business?
In this blog post, we will examine the most effective ways needed to do a market analysis. The importance of rental market analysis cannot be overemphasized for property managers and property owners. It is essential to take time to do the math, compare similar properties and understand your rental market area. This article will show you how to carry out a market analysis so that the decisions you make are not based on intuition, but on verifiable information.
A thorough rental market analysis can provide you with accurate data to make informed decisions. Here are some of the most effective strategies on how to do your own market analysis.
“Location, Location, Location”
You’ve most likely heard the saying “Location, Location, Location”. Location is one of the most important factors to be included in a rental market analysis. If you’ve chosen a rental market to focus on you need to evaluate different neighborhoods. The purpose of this is to identify profitable neighborhoods within your focus area and compare the rental rates. Inexperienced property managers, property owners, or real estate investors have the tendency of focusing on entire cities instead of profitable neighborhoods. When you focus on identifying profitable neighborhoods it will give you a more accurate forecast for potential profit generation.
It is important to note that there are some factors that can help you determine a profitable neighborhood. For rental properties, you would want to keep an eye out for neighborhoods that are close to amenities such as supermarkets, parks, restaurants, shops, healthcare facilities, leisure spots, gyms, etc. Also, neighborhoods that are safe, secure, and are in good districts should be considered. These are some of the things renters look for in a place to live.
Find a good Strategy
A rental market analysis can be very tricky, the reason being is that there is so much data to sift through. Before you get on with the herculean task of doing a market analysis you need to identify your goals, set your objectives, and find a good strategy to accomplish them. There are two distinct, but complementary, strategies for doing a rental market analysis.
A demand-based rental market analysis focuses on identifying competition that offers similar housing features potential tenants will expect. These features could be location, amenities, public transport accessibility, and price.
The second strategy is a supply-based analysis. It identifies rental properties that market options that are similar to your single-family homes or apartments.
When you examine your competition from both perspectives it will enable you to determine where you should invest your resources to stay competitive. Issues like location and access to public transportation might be outside your control. However, you can make adjustments or revamp your property to make it desirable to potential tenants.
Use Rental Comps.
Rental comparables are key elements of rental market analysis. They are used to compare the rent from properties with similar features in the same area. If you want to set the right rental rate you need to use rental comps, you don’t want to be in a position where you set the rent too high and risk the property sitting vacant for too long. Also, you wouldn’t want to set it too low and attract undesirable tenants that may end up costing more in the long term.
How do you go about setting the right rental rate?
You must identify and determine an acceptable rental rate for your area. Carefully examine other properties in your neighborhood and carry out some market research. Once you’ve done that you can proceed to set the price of your rental units.
Furthermore, rental comps are crucial to your profitability, however, they can be tasking, resource-intensive, and time-consuming. Doing rental comps shouldn’t be arduous, free websites like Zillow, Realtor.com, Craigslist, and Rentrage let you analyze rental rates for your property based on location and size.
Compile the information you gather
It takes time and effort to carry out a comprehensive review. Obtaining a comprehensive review would require you to research key information about properties in your rental market area. These include:
Average vacancy rate
- Rental rate in the market area
- Proximity to your rental property
- Established properties vs Newly constructed Properties
- Tenant Profile: Occupation, Age, Family or single, Tenancy Duration
- Number of days on the rental market, per unit
It’s also important to use the internet, social media sites, competitor websites, and business directories to conduct a rental market analysis. These platforms provide valuable information about interactions between consumers and property management companies. All the more, they give you insight into what consumers think about properties in your market area.
Final Thoughts…
Running a rental market analysis is extremely important in property management. In order to achieve this, you need to understand and implement effective strategies. The strategies listed in this blog post are a few amongst many you can use to run a market analysis. Once you’ve compiled the necessary data, you can strategize and put together a plan of action. A thorough and well carried out rental market analysis gives your team relevant information about your competition and your rental area.
At Property Management DNA, we understand the intricacies of conducting a proper market analysis. With our experiential knowledge and expertise, we can help you use the information obtained from rental market analysis to enable you to leapfrog your competition and gain a competitive edge.