That’s I question I am often asked. It usually goes something like this: Dave, I have (or am considering buying) a 1400 square-foot, 3-bedroom, 2-bath home with a 2-car garage, etc., etc., etc. How much can I get for it as a rental? After the questioner has finished giving me all the etcetera’s, I still usually have a few questions. I will nearly always want to know the location, when it was built, its condition, and so forth. We get this question all the time at Far West Property Management in Prescott from investors when looking for property management in Prescott. Here’s a breakdown of what goes into determining the rental price:
- The location matters because pretty much without fail, I can take a given house in an average nice neighborhood in Prescott Valley, and hypothetically move that same house to an average nice neighborhood in Prescott, and it will bring significantly more money per month as a rental. Remember, value is all about what people will pay.
- Also, typically, a 1400sf, 3/2/2 built in 2017 will bring significantly more money in the same or a similar neighborhood, than a 1400 sf, 3/2/2 built in 1972. In addition, the maintenance costs on the 2017 are very likely to be much less than the 1972 model, which will render the net profit on the newer home much higher as a percentage of the gross, than the older one.
- Condition is obviously important, but will encompass more variables and therefore is a more complex element. It’s pretty clear that newer homes in general should need less short-term maintenance, than the older home. But from the perspective of two different homes, of the same age, and in the same or similar neighborhoods, the one having been meticulously maintained, and the other not well maintained at all, the latter may be a money pit, and the former a very profitable investment.
The bottom line is that any home, in any neighborhood of any age, in any condition, is worth exactly what a ready, willing and able prospect will pay to lease it. Currently, the Prescott area rental market is a pretty strong landlord’s market, where the demand for good rental units far outstrips the supply. So, a 1400sf 3/2/2 in a good neighborhood might bring a dollar per square foot or more, within a week of being first advertised. But, I often have to remind clients that if a rental investment property pencils at $1400 today in the current market, it may not pencil at all two years from now, if the market drops and the unit will only bring $1250.
I always emphasize the need for a healthy gap between income and expense, to allow for unexpected market fluctuations. Especially if a property owner is servicing a mortgage, I always try to recommend at least a 30% margin between income and expense, to allow for the unexpected. In addition, I think it is vital to sock that amount away for the inevitable rainy day that comes eventually to the lives of all rental properties.
If any of this has been helpful, and you’d like to know more, call Dave at Far West Property Management today at 928-772-9400 He’s always happy to help.