How to determine fair market value for rental property

Fair Market Rent is the estimated amount of money property with a certain number of bedrooms, in a certain area of the country, will rent for.

How Is Fair Market Rent Calculated?

Fair market rent is a gross rent estimate that includes the base rent, as well as any essential utilities that the tenant would be responsible for paying, such as gas or electric. It does not include non-essential utilities such as telephone, television, or internet.

HUD arrives at the numbers for each area with the help of census data and through renter surveys. Every year, HUD compiles a list of the Fair Market Rents for over 2,500 metropolitan and non-metropolitan counties.

What Is Fair Market Rent Used For?

Fair Market Rents are used to determine rental voucher amounts for government assistance housing programs such as Section 8 (Housing Choice Voucher Program).

Also Known As: FMR, Market Rent

Example:
In the city of Newark, New Jersey, the fair market rent for a two-bedroom apartment is $1,643 in 2021. The fair market rent for a one-bedroom is $1,358 in 2021.

What Is Section 8?

Section 8 is a program that provides financial assistance to certain individuals to help them afford to rent a home. The program gives housing vouchers to these individuals. To qualify to receive a voucher, you cannot make more than a certain amount of money each year, based on the number of people in the household. 

If a landlord agrees to rent to a Section 8 tenant, the Section 8 program will first inspect the property to make sure it meets certain standards. If the property passes the inspection, then the landlord will be paid directly each month by the Section 8 program. 

How Much Will Section 8 Pay?

Section 8 will determine the voucher amount by first figuring out the number of people in the household. It will then determine the size of the apartment the household qualifies for. For example, a three-person household may qualify for a two-bedroom voucher.

Since the fair market rent for a unit can vary greatly depending on the area of the country the unit is located in, Section 8 will then set the voucher amount by using the fair market rent for the specific region. Depending on the tenant's income, the voucher may not cover the complete amount of the monthly rent. The tenant may still be responsible for paying a portion of the monthly rent.  

How to Set the Right Price for Your Rental

There will be a maximum amount you will be able to charge for your rental based on a number of different factors. These factors can include:

• Location: The location of your unit plays a huge part in setting the rent. If your property is located in a desirable town, you can charge more. If your property is located in the best school district in the town, you may be able to get an even higher rent. Two units that are only two blocks away from each other can command very different rents because they are in different towns or in different school districts.
• Size: There will be a maximum amount you will be able to charge based on the square footage and number of bedrooms and bathrooms your unit has. 
• Amenities: If your property has a great view, outdoor space, central air conditioning, or is newly renovated, you may be able to charge more for your unit compared to other units in the area which are similar in size to your unit. 
• Demand: If there are many available units in your area and not that many interested renters, you may have to drop the price on your unit to get it rented.

It can be very tricky to price your rental correctly. It involves trial and error. Finding at least three properties in your area which are similar to yours can be helpful in determining the right price.

If you are an investor looking for an additional rental property, it’s important to know the fair market value of your property. This will help you set a reasonable price for your property and avoid under-or over-charging tenants. It will also give you a good idea of what to expect in terms of rental income. This blog post will discuss what fair market rental value is and how to calculate it.

What Is Fair Market Rental Value?

The fair market rental value of a property is the price that a willing and able tenant would pay to rent the property on terms agreeable to both the landlord and tenant. In order to determine the fair market rental value of your property, you will need to consider several factors, including:

• The location of your property
• The size of your property
• The amenities included with your property
• The condition of your property
• The current state of the market (i.e., whether rents are rising or falling)

Once you have considered all of these factors, you will be in a good position to set a fair rental price for your property. It is worth noting that the fair market rental value of a property can change over time, so it is important to keep up-to-date with market trends.

What Is the Difference Between Market Rent and Actual Rent Charged?

The market rent is the price that a property would fetch on the open market if it were to be rented out today. Actual rent is the price charged per month on your lease before any concessions have been applied.

The actual rent charged may be higher or lower than the market rent, depending on the terms of the lease agreement. For example, a tenant may be willing to pay a higher rent if they are given a longer lease term or if they are allowed to make changes to the property.

What Is Effective Rent vs. Market Rent?

Effective rent is the actual amount of money that a tenant pays after taking into account any discounts or concessions that the landlord has offered. For example, if a tenant is given a discount for paying their rent on time, the effective rent would be lower than the market rent. Effective rent is a more accurate measure of what tenants are actually paying and is a good metric to use when comparing different properties.

How to Determine Fair Market Rental Value

There are a number of ways to determine the fair market rental value of your property. All these methods involve looking at comparable properties in the area that have been recently rented out and making a fair judgment on how much you can rent your property. Here are four ways to calculate fair market rental value:

1. Use Rent Estimate Tools Like Rentometer, Mashvisor, and RentRange

These tools offer rental estimates for properties across the United States. Simply enter your property’s address and the number of bedrooms, and you will be given an estimate of what your property could rent for on the open market.

However, these tools are not quite accurate and should only be used as a guide.

2. Use Automated Websites Like Zillow, Trulia, and RentBits

These websites can give you a good idea of what similar properties in your area are renting for. Simply search for houses in the neighborhood that were rented out recently and compare their prices. The more similar the units are to your property, and the nearer they are, the better.

Once you have an idea of what other properties in the area are renting for, you will need to adjust your rental price based on the factors we discussed earlier. For example, if your property is located in a desirable neighborhood, you may be able to charge a higher rent than properties in less desirable areas. Similarly, if your property is larger or in better condition than other rentals, you may be able to charge a higher price.

3. Use Traditional Media Channels Such As Local Newspapers and Local Advertisements

You can also try looking for rental prices in traditional media outlets, such as your local newspaper or online classifieds websites. This can be a bit time-consuming, but it’s worth doing if you want to get an accurate picture of the market.

Also, as you explore this method, you may meet a group of rental property consultants or agencies that choose to do their business offline. You can ask these people about rental rates and availability. They can also be a good resource for ideas on pricing and potential networks for future projects and ventures.

4. Explore Professional Networks Such As Local Landlord Associations, Real Estate Clubs, and Renter Associations

If you know any landlords or real estate professionals in your area, they may be able to give you some insight into the local rental market. These people usually have their finger on the pulse of the market and can give you a good idea of what properties are renting for. They may also be able to put you in touch with other landlords who are looking for tenants. Such networking can help you stay up to date on market trends.

Final Thoughts

The best way to determine your property’s fair market rental value is to use a combination of these methods. By using multiple sources, you will get a more accurate picture of the market and will be able to set a fair rental price for your property.

It is also important to be realistic. If you set your price too high, you may have difficulty finding tenants. Conversely, if you set your price too low, you may lose money on your investment.

Contact the team at Broadmark Realty Capital to find the ideal financing solution for your next real estate investment.

What is meaning of fair rental value?

What is fair market value?