Dropmodel Release: An Inside Look at Our Real Estate Rental Comparables Tool
Running a rental comparables report (“rental comps”) is an easy and accurate way of determining the market rental rate for a single-family residence or apartment unit. By assessing what lease rates are for comparable properties, one can proceed more confidently with setting rental rates for new leases or renewals, and for owned properties or those that an investor is considering purchasing.
We set up our Rental Comps tool much like our Sales Comparables tool, including:
An easy-to-use input phase for adding properties
A concise summary of the comp set with average, high and low figures for each of the criteria
A map view with both the subject property and comp properties displayed.
An Overview of Rental Comparables
Rental comparables are listed or previously listed rental properties or units that are referenced in terms of their similarity to a subject property or unit. References for comparison include characteristics like location (quality and distance from the subject), square footage, number of beds and baths, amenities, etc.
Real estate professionals typically “run a comp report” for a single subject property or rental unit by running a search of properties using predefined criteria, selecting the properties that deem to be acceptably comparable, and adding them to a spreadsheet which compares the individual properties to the subject. These reports often highlight the highs, lows, and averages of each of the criteria for the entire comp set.
In addition to the objective property criteria mentioned above, comp reports often include subjective commentary in a “notes” section, explaining why a property, whether the subject or a comp, might command a higher or lower rental rate or be more appealing.
For example, a report might include subjective comments about: curb appeal, the characteristics of a particular street or neighboring properties, property condition, amenities, proximity to amenities, etc. These comments and the other criteria are taken into account as a whole by the professional to determine a rental rate or range of rates for the subject property.
After a comp report is completed, it can continue to be updated until the use case is no longer applicable to that property.
Effective Rent and Why It’s Important In Your Comps
The term “effective rent,” also known as “net rent,” refers to the result of taking the stated rent (what appears in a lease contract) and accounting for concessions or monetary incentives that lower the renter’s total cost burden. Concessions can come in many forms, for example: one-month free, or $500 move-in special.
The Dropmodel Rental Comparables Tool allows the user to enter both the contract rent (aka “face rent”, “gross rent”) and the concession, which will automatically generate an effective rent figure.
When applicable, it’s helpful to use effective rent rather than face rent to make sure the burden to renters is what is being considered. Doing this allows for an apples-to-apples comparison that normalizes a market with drastically different concession packages.
Is it a good comp or a great comp? Using the Dropmodel Comp Grading System
The backbone of a high quality, useful rental comparables report is having at least one comparable that has been rented, or is likely to be rented at the listed rental rate, and that is as close to identical as possible to the subject property or unit in terms of location and property characteristics.
The Dropmodel Grading Criteria feature in the Rental Comps Tool allows the user to specify ranges for various criteria that, if met by a comp property, result in that comp being awarded a “highly comparable” icon. This helps separate the few strong comps from the rest which can help with decision-making.