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How do I Determine the Fair Market Rent for My House?
At some point in your life you may decide that purchasing a home as an investment property is a wise decision, or you may want to rent your current residence rather than selling it. Both scenarios can be potentially lucrative, if you lease the property for the appropriate amount. The question you may be asking yourself is, “How much can I rent my house for?” This is an excellent question. In fact, before you decide to lease your property, you should find out what the fair market rent value is. Researching this information prior to any decisions will help you discover, if renting is the right option for you.
There are several ways you can obtain this information. If you are considering hiring a property management company to handle all operations and maintenance of the property, they can provide you with fair market value rents in your area. Some individuals prefer to do the research themselves first, regardless of the eventual outcome. Doing your own analysis makes excellent sense. Even if you decide to hand the day-to-day operations over to a property management company, having this information at your disposal will ensure that the home is being leased for a reasonable amount. If you haven’t put the effort into the research, you may find out that the management company is over or undercharging your tenants. Either scenario will have a negative effect on your bottom line. If the amount is too low, then you are cheating yourself out of potential profits. On the other hand, if the leased amount is too high, you may discover that the home is vacant for long periods of time, or worse not occupied at all. If you depend on the incoming funds to help with mortgage payments, you may find yourself in a very tight squeeze.
So where can you go to find out the fair market rent for a home on your own? There are a few ways to locate this information. You will need to do some research and homework, so be prepared to spend a little time on this project. This doesn’t mean you will be spending hours at your computer or pouring over volumes of documentation. You can easily accomplish this task in less than a day. It may only take you very little time at all, if the property is located in a metropolitan area.
The Internet is the most convenient and accessible way to locate the fair market rent for your house. There are several publications available that will provide a generic idea of rental rates in your area. A great place to start is the Department of Housing and Urban Development or HUD. Their website www.hud.gov contains information on Fair Market Rents for the 40th and 50th percentiles. What does this mean? Well, it is basically the rental dollar amount that 40% (or 50%) of the rents are below. Most areas will use the 40% mark, while larger metropolitan areas will fall into the 50% arena. There are other websites on the Internet that allow you to type in a city or county and receive basic rental rates for that region. This, of course, is very generic information, but it will give you a broad idea of where rents in your area stand.
It is important to remember that fair market rents will vary depending on the location of the property. Different neighborhoods demand higher or lower rates. As they say in real estate, “location is everything”. If your property is located in a lower income area of town, you will probably be fine using the HUD Fair Market Rent information. However, if the home is located in an upper scale neighborhood, then the HUD information will probably not work for you. So, where do you go from here?
The answer is simple really. The Internet has opened up a wealth of information that is accessible to anyone. If you want to find out what homes are renting for in your area, there are numerous websites that list rental properties online. You can locate dozens of these sites by doing a simple search through your favorite search engine. Choose at least four or five sites from the expansive list available. Then run a search for homes in your city or neighborhood. The best results will be achieved by using the sites that offer advanced searches and break down listings by neighborhood or zip code. The more detailed the search, the more reliable the information. Once you see what lease rates are for similar homes in the neighborhood, you will have an excellent gauge of what the fair market rent on your property should be. Make sure you search several sites, before making any decisions. It is also a good idea to take the time to make a few phone calls.
Don’t be afraid to use your acting skills, when you are doing your research. Select a few homes that closely resemble your property from the best websites, and contact the owner or management company. Here are a few things to ask to make sure the home’s rental rate isn’t priced too high for the location. Begin by asking, if the property is still available. Obviously, if it isn’t, then there is a good chance that the rent is set at a fair market rate. If it has already been leased, find out how long it was available. If it was only available for a very short time, the owner may be under estimating the rental rate. However, if it was on the market for, say 6 months, then the price may be too high. If the property is still available, try to get more information on the amenities. This will let you know how closely it resembles your property. In addition, ask the same questions regarding the length of time the home has been on the market. Once again the same rules would apply. After you have completed your research, you will be able to set the fair market rent value of your property with confidence.