Should You Conduct Market Research for Your Rental?
How many factors are there in how well a rental property will do - dozens? Hundreds? The sheer number means that doing market research for your rental property is daunting.
It also can have massive payoffs. Good research leading to a good property can get you better tenants, more rent and fewer headaches in your life. It's not without its drawbacks, but it's so much better than going in underinformed.
Should you hire a market research company?
Like so many questions, this is a "maybe". Market research is a lot of work and professionals will be better than you are on your own. They can do it in less time and higher quality than you can for most purposes, but it's going to cost you. If you decide to go with a professional, make sure to do your research on them before signing any contracts or paying any money. Get recommendations from other landlords for what companies do best and carefully check over their work. You'll probably also need to do some local work on your own to supplement what they do. Unless they fly out and walk around the neighborhood you're looking at buying in, there's always the chance they missed something.
Good data means you take fewer risks
Renting is a risky business. You're putting up a lot of money to buy and manage a property which you'll have to pay, whether or not someone is living there and paying the rent. Having the data and research will help you to remove a lot of the risk. You'll never find a perfectly safe bet, but you can stay away from the really risky ones with good market research.
Collect as much data as you can
It's possible to get overloaded with too much data, but it's even more dangerous to not have enough. You're going to want to study all sorts of rental trends, so getting as much data about your property and rental trends is going to help you make better decisions down the line. This may require getting help going through the data, which can cost you. Just keep in mind the above section. The better research you have, the less risk you're taking, so spending a little extra money now can have great returns over time.
Look broad and local
It's easy to get caught in the trap of thinking too narrowly. If you spend all your time researching your community, you can be caught off-guard by bigger trends when they get to you. If you focus on just broad, state or national trends, the quirks of the local community will be lost on you, which can be an expensive mistake to make.
The above are great guiding principles, but you don't just want those. What are concrete steps you can take to get the data you need? What data do you need in the first place? What are the specific things that need doing?
Get on the ground and look around yourself
At risk of sounding obvious, we mean this literally. Drive to your property or the one you're researching and take a walk down the street. What does it look like from the outside? How does it compare to the others down the street? Does this property stick out for some reason and is that a good reason? What things are nearby that you can easily walk or drive to? Getting this information on any properties helps you to understand what you'll have to offer potential tenants.
In addition to any other judgment calls, you'll want to make sure you have this information:
- Proximity to public transportation
- School ratings
- Nearby businesses
- Nearly parks and other attractions
- How welcoming/inviting the property and neighborhood is
Research comparable properties nearby
Since you're competing with other rental properties in the area, you'll want to offer something competitive to them. You'll do a little of that research walking around the neighborhood, but searching for other rental properties online and contacting other local landlords will help fill in some possibly very useful data for you.
In addition to other judgment calls, make sure you have this information for other properties in your and other nearby neighborhoods:
- Square footage
- Number of bedrooms and bathrooms
- Lot size
- Condition of the building
- How long it's been on the market
- Monthly rental rate
This will help you find what the rental rate of your property should be. In general, you'll want to find the approximate rental cost per square foot, then adjust up or down based on amenities, the occupancy rate, and any other factors that might show themselves in your research.
This should happen both in person and in other ways, such as social media or online surveys. This is where a professional market research company can be particularly useful: they have more experience with collecting data like this, so you'll want their help, especially for the online portion of data collection.
For the local questions or if you're doing it all yourself, here are some questions you should ask:
- Is this price reasonable? (Do this with several different price points for your rental, along with a description of the property.)
- How does this compare to the competition? (You may need to include some specific information about competing rentals to get a good answer here.)
- Would you respond to a promotional offer on this property if it was offered? (Follow this up with some potential promotional offerings to get an idea of what specifically would get people interested.)
- What do you think of the overall quality of this property?
Don't be afraid to go out and collect some of this data by asking people in face to face meetings. Having the interaction and opportunity for conversation that comes up in there can give you a lot more information than any written response, even very well-written ones, could give.
Look beyond just a single property as it is
If you're still in the buying stage, why stop at just one property? Look at several that are out there and on the market. This helps mitigate the risk and gives you more potential to find the perfect place. You'll also want to think about the possibility of improving the property, though that comes with a whole new set of risks. The important thing is, don't just limit yourself to one single property that you could buy.
Doing market research for your rental is difficult, time-consuming, and potentially expensive. You should do at least some of it, however, as it helps you make better choices for what rental properties are your best options. Like so many things, it pays off in the long run, so take the time now and do it right before you regret not having done the research.