Want to know more about the income potential of your Nashville rental? If so, the first thing you should do is conduct a rental market analysis (RMA).
A good way to think of an RMA is as a rental market forecast. It allows you to examine all the factors that influence your rental, from size to location. As such, an RMA is the perfect tool for determining your optimal rental rate.
So, how do you perform an accurate rental analysis? To answer that, let's go over the four main steps involved in this process!
Evaluate Your City
First, you'll want to take a look at Nashville itself. Some cities offer better rental investment opportunities than others, and it helps to know why.
For example, the current average rent in Nashville is $2,249 per month. This is part of a growing nationwide trend of rent increasing faster than wages. Depending on your location, rental demand could be an issue.
You should also look at other factors specific to Nashville, such as:
- Share of renters vs. homeowners
- Real estate appreciation rate
- Average rental operating costs
Assess the Neighborhood
Your neighborhood plays a key role in rental property ROI. This is particularly true for large cities like Nashville, where each area has its own market.
Of course, different renters will look at different neighborhood attributes. Families with children will consider the safety and quality of schools. Younger renters may be more interested in job opportunities or nearby amenities.
Your neighborhood can have negative indicators as well. These include high crime rates, vacant properties, noise, and so on. If your neighborhood has too many of these, your vacancy rates may be higher than usual.
Find Rental Comps
Once you're acquainted with your neighborhood, look at the competition. Rental comps in your area are key benchmarks for any investment analysis.
A good rental comp should be similar to your own property. Factors to look for include square feet, number of bedrooms/bathrooms, amenities, and lot size. You can also look at how long the property has been on the market.
For best results, try to find at least three solid rental comps. Listing websites like Zillow or Redfin are good places to start. You can also talk to a property manager or realtor and have them look into this for you.
Calculate the Rental Rate
The rental comps also make it easier to calculate your rental rates. With this data, you can identify a range of potential rental estimates.
To narrow it down further, consider your rental's operating expenses. Then, subtract that number from your monthly rental income. This will make it clear if the rental will generate positive or negative cash flow.
Other factors that come into play here are your ROI, capitalization rate, and vacancy rate. Taken together, these elements will provide a full picture of your optimal rental rate and rental income requirements.
Is Rental Analysis Worth it?
As you can see, rental analysis is far from a simple task. At the same time, it's the cornerstone of your rental's performance. The above guide will help you do it the right way!
Want to leave the rental market analysis to the experts? At Green Tree Property Management, we've helped many Nashville landlords like you! Contact us here to learn more about our property management services!
