Many factors go into determining the right Central Florida rental rates for investment properties. It takes a lot of research, market analysis, and objective assessment. Below, we offer some of the factors we use to help property owners determine the right rental rates for their investments.
Comparable Rates
Setting the right lease price begins and ends with looking at comparable listings (aka comps). But it involves more than just seeing what others are asking for 2-bedroom apartments in your property’s neighborhood.
Typically, the market difference for a specific type of property in an area will be ~$200, although it can be a $300-$400 range in some areas.
Key Data Points
Crucial factors influencing the determination of suitable Orlando rental rates include:
- Lease Price
Most importantly – what did the property rent for? The lease price is the starting point because it shows you what tenants are willing to pay for a comparable property in that area. The more leased comps available, the better.
- Days on the Market (DOM)
With the high demand for rental homes in Central Florida, an attractive, appropriately priced rental property should have a short lease duration (2-3 weeks is normal). The longer a property listing sits on the market, the less desirable it is to potential tenants. A higher DOM may have more to do with pricing than the property itself, or it could be the condition of the specific property.
- Original List Price
Original list price is an important metric because it shows you not only indicates the property’s initial pricing, but more importantly, reflects a price point renters were unwilling to pay. When potential tenants do searches, you can nearly guarantee that cost will be a filtering factor. Listing above this threshold can result in decreased visibility in tenant searches.
- History of Price Reduction(s)
Just like a house listed for sale, when a rental unit sees multiple reductions in price, potential renters will likely shy away from it. If comparable properties underwent multiple price reductions, do not list your property at the same price unless there is a reason to justify the increased rental rate. Learn from other’s experiences and lost revenue, and price your property appropriately.
- DOM at the Leased Rate
If the property was listed for rent for a long time, but was only on the market for a short period at the lease rate before renting, that is a good indicator. It can also help you recognize market shifts.
- Market Seasonality
Generally, DOMs and rental rates fluctuate with seasonal patterns. Rates fall and DOM climbs (28-32 days) in November to January, while rates climb and DOM fall (15-21 days) during Spring to Summer. Some areas experience varying impacts due to seasonal changes in inventory.
Rehabs and Amenities
Not all three-bedroom rentals are created equally. Amenity comparisons will help hone in on what tenants are willing to pay for a specific type of property in a specific neighborhood. After analyzing the comps, next look at the specific property
For example, recently renovated or new properties will be much more desirable, rent faster, and command higher rates than dated rental homes. You can plan to list closer to the higher end of your market scale when your place is brand new or recently renovated.
Other factors to consider include single-family properties on lakes or waterways, which attract more potential tenant interest and higher rental rate. Does your property have a pool? You can typically expect a boost of $200-$250 in Orlando rental rates when comparing properties that don’t offer the splashing amenities of a pool.
Don’t Exclusively Use Zillow
While Zillow provides ballpark rental rates, it’s prudent not to depend solely on those numbers from Zillow to make your listing decisions. Why?
Many times Zillow lists properties “off market,” which they consider as rented. If utilizing Zillow for rental analysis in your area search the individual “off-market” properties by address. Searching the individual property listings can show you if it was rented or if it was sold. During rental analyses, our team will often find “off market” properties with sold, canceled, or temporarily off-market rental listings that Zillow considers rented. If those properties did not get rented, that skews the rental rates high and lowers your chances of setting the right rental rates. As a general rule of thumb, Zillow is almost always $100-$150 above the actual market value.
A Word About Vacant Listings
The number of vacant properties in a neighborhood will tell you a lot about where your property can fall on that comp list to look desirable. However, vacant properties are not the full indicator of a market because nobody has paid that amount for rent (otherwise it wouldn’t still be listed).
For example, if there are a lot of vacant properties in an area, price becomes a lot more important. You want to make your place look more desirable in the crowd.
On the flipside, if there are fewer vacant comps, you can probably list your rental on the higher end of the market scale because you’ll have less competition for desirable tenants.
What’s Love Got to Do with It? NOTHING!
Finally, make business decisions (and setting rent rates most definitely counts as a business decision) with your head, not your heart. That means your current mortgage, monthly payments, and your feelings have zero bearing on the rental rate.
Some owners will want to list well above the market because they have a mortgage payment higher than the rental market. Guess what happens? Months later, their rental is still on the market, losing out on thousands, sometimes tens of thousands of dollars, of collected rent because they listed too high and weren’t willing to reduce their rent down to the market value.
The funny thing is once they catch on, their property has an undesirably high DOM, multiple price changes, and turns off even more potential tenants. All because “it would be cool to make $1,000 over the mortgage.”
Remember, there is a point where prolonging the vacancy period to get an extra $100 or $200 a month is a net negative when you consider the combined daily revenue lost.
Ready for More Rocket Science?
If all these variables have your head spinning, take advice from the most highly rated Central Florida property management company, The Realty Medics. Find out more about how we offer property peace of mind by calling 321-947-7653 or completing our online form for a free rental analysis of your property.
